Hock Lian Seng Holdings Limited (SGX:J2T), a construction company based in Singapore, saw a decent share price growth in the teens level on the SGX over the last few months. As a small cap stock, hardly covered by any analysts, 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 examine Hock Lian Seng Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity. Check out our latest analysis for Hock Lian Seng Holdings

What’s the opportunity in Hock Lian Seng Holdings?

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 10.15x is currently trading slightly below its industry peers’ ratio of 10.53x, which means if you buy Hock Lian Seng Holdings today, you’d be paying a fair price for it. And if you believe Hock Lian Seng Holdings should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. In addition to this, it seems like Hock Lian Seng Holdings’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Hock Lian Seng 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. Though in the case of Hock Lian Seng Holdings, it is expected to deliver a negative earnings growth of -18.82%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Hock Lian Seng Holdings seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on Hock Lian Seng Holdings, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on Hock Lian Seng Holdings for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on Hock Lian Seng Holdings should the price fluctuate below its true value.