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China Agri-Industries Holdings Limited (HKG:606), which is in the food business, and is based in Hong Kong, saw a decent share price growth in the teens level on the SEHK over the last few months. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at China Agri-Industries Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.
View our latest analysis for China Agri-Industries Holdings
Is China Agri-Industries Holdings still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 11.99x is currently trading slightly below its industry peers’ ratio of 15.66x, which means if you buy China Agri-Industries Holdings today, you’d be paying a fair price for it. And if you believe China Agri-Industries Holdings should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. So, is there another chance to buy low in the future? Given that China Agri-Industries Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will China Agri-Industries Holdings generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 65% over the next couple of years, the future seems bright for China Agri-Industries Holdings. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? 606’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at 606? Will you have enough conviction to buy should the price fluctuate below the true value?