Today we're going to take a look at the well-established Rongsheng Petrochemical Co., Ltd. (SZSE:002493). The company's stock received a lot of attention from a substantial price movement on the SZSE over the last few months, increasing to CN¥11.56 at one point, and dropping to the lows of CN¥8.67. 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 Rongsheng Petrochemical's current trading price of CN¥8.90 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at Rongsheng Petrochemical's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Is Rongsheng Petrochemical Still Cheap?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We'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 26.81x is currently trading slightly below its industry peers' ratio of 27.32x, which means if you buy Rongsheng Petrochemical today, you'd be paying a reasonable price for it. And if you believe Rongsheng Petrochemical 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, Rongsheng Petrochemical's share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from Rongsheng Petrochemical?

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. 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. Rongsheng Petrochemical's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in 002493's positive outlook, with shares trading around industry price multiples. 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 002493? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you've been keeping an eye on 002493, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for 002493, which means it's worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To that end, you should learn about the 2 warning signs we've spotted with Rongsheng Petrochemical (including 1 which is significant).

If you are no longer interested in Rongsheng Petrochemical, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.