China Resources Microelectronics Limited (SHSE:688396), is not the largest company out there, but it saw significant share price movement during recent months on the SHSE, rising to highs of CN¥43.38 and falling to the lows of CN¥36.16. 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 China Resources Microelectronics' current trading price of CN¥37.01 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at China Resources Microelectronics's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What Is China Resources Microelectronics Worth?
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 43.16x is currently trading slightly below its industry peers' ratio of 48.81x, which means if you buy China Resources Microelectronics today, you'd be paying a decent price for it. And if you believe that China Resources Microelectronics should be trading at this level in the long run, then there's not much of an upside to gain over and above other industry peers. Furthermore, it seems like China Resources Microelectronics'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 China Resources Microelectronics 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. With profit expected to grow by 71% over the next couple of years, the future seems bright for China Resources Microelectronics. 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? 688396'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 financial strength of the company. Have these factors changed since the last time you looked at 688396? 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 688396, 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 688396, 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 China Resources Microelectronics at this point in time. Be aware that China Resources Microelectronics is showing 2 warning signs in our investment analysis and 1 of those is a bit concerning...
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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.