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China Everbright Water Limited (SGX:U9E), a water utilities company based in China, saw its share price hover around a small range of SGD0.40 to SGD0.44 over the last few weeks. But is this actually reflective of the share value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at China Everbright Water’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View out our latest analysis for China Everbright Water
What’s the opportunity in China Everbright Water?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that China Everbright Water’s ratio of 10.62x is trading slightly above its industry peers’ ratio of 9.91x, which means if you buy China Everbright Water today, you’d be paying a relatively reasonable price for it. And if you believe that China Everbright Water should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because China Everbright Water’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from China Everbright Water?
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 a double-digit 14.06% over the next couple of years, the outlook is positive for China Everbright Water. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has already priced in U9E’s positive outlook, 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 U9E? Will you have enough confidence to invest in the company should the price drop below its fair value?