UMW Holdings Berhad (KLSE:UMW), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the KLSE over the last few months, increasing to RM3.97 at one point, and dropping to the lows of RM3.56. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether UMW Holdings Berhad's current trading price of RM3.75 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 UMW Holdings Berhad’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 UMW Holdings Berhad
What's The Opportunity In UMW Holdings Berhad?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 10.56x is currently trading slightly below its industry peers’ ratio of 14.67x, which means if you buy UMW Holdings Berhad today, you’d be paying a reasonable price for it. And if you believe UMW Holdings Berhad should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like UMW Holdings Berhad’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
What does the future of UMW Holdings Berhad look like?
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. However, with a relatively muted profit growth of 1.4% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for UMW Holdings Berhad, at least in the short term.
What This Means For You
Are you a shareholder? It seems like the market has already priced in UMW’s growth outlook, with shares trading around industry price multiples. 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 UMW? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?