Lushang Freda Pharmaceutical Co.,Ltd. (SHSE:600223), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the SHSE over the last few months, increasing to CN¥9.69 at one point, and dropping to the lows of CN¥7.76. 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 Lushang Freda PharmaceuticalLtd's current trading price of CN¥8.06 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 Lushang Freda PharmaceuticalLtd's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

What's The Opportunity In Lushang Freda PharmaceuticalLtd?

According to our 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. 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 35.15x is currently trading slightly above its industry peers' ratio of 35.15x, which means if you buy Lushang Freda PharmaceuticalLtd today, you'd be paying a relatively sensible price for it. And if you believe that Lushang Freda PharmaceuticalLtd should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Lushang Freda PharmaceuticalLtd's share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Lushang Freda PharmaceuticalLtd 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. 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 more than double over the next couple of years, the future seems bright for Lushang Freda PharmaceuticalLtd. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? 600223's optimistic future growth appears to have been factored into the current share price, 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 600223? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you've been keeping tabs on 600223, 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 600223, 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.

So while earnings quality is important, it's equally important to consider the risks facing Lushang Freda PharmaceuticalLtd at this point in time. While conducting our analysis, we found that Lushang Freda PharmaceuticalLtd has 1 warning sign and it would be unwise to ignore this.

If you are no longer interested in Lushang Freda PharmaceuticalLtd, 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.