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Legend Holdings Corporation (HKG:3396), which is in the tech business, and is based in China, saw significant share price volatility over the past couple of months on the SEHK, rising to the highs of HK$25.4 and falling to the lows of HK$21.75. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Legend Holdings’s current trading price of HK$21.75 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Legend Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for Legend Holdings
What is Legend Holdings worth?
According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 8.67x is currently trading slightly below its industry peers’ ratio of 8.82x, which means if you buy Legend Holdings today, you’d be paying a fair price for it. And if you believe Legend Holdings should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Is there another opportunity to buy low in the future? Since Legend Holdings’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Legend 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. Legend Holdings’s earnings over the next few years are expected to increase by 42%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? 3396’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 financial strength of the company. Have these factors changed since the last time you looked at 3396? Will you have enough conviction to buy should the price fluctuate below the true value?