China Everbright Water Limited (SGX:U9E), a water utilities company based in China, received a lot of attention from a substantial price movement on the SGX in the over the last few months, increasing to SGD0.48 at one point, and dropping to the lows of SGD0.42. 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 China Everbright Water’s current trading price of SGD0.43 reflective of the actual 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 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. 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 13.05x is currently trading slightly below its industry peers’ ratio of 14.01x, which means if you buy China Everbright Water today, you’d be paying a reasonable price for it. And if you believe China Everbright Water should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that China Everbright Water’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 Everbright Water generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. China Everbright Water’s earnings over the next few years are expected to increase by 29.99%, 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? U9E’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 U9E? Will you have enough conviction to buy should the price fluctuates below the true value?