Shenzhen Fortune Trend technology Co., Ltd. (SHSE:688318), might not be a large cap stock, but it saw a significant share price rise of 20% in the past couple of months on the SHSE. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. As a CN¥16b market-cap stock, it seems odd Shenzhen Fortune Trend technology is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let's take a look at Shenzhen Fortune Trend technology's outlook and value based on the most recent financial data to see if the opportunity still exists.
Is Shenzhen Fortune Trend technology 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. In this instance, we've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. We find that Shenzhen Fortune Trend technology's ratio of 54.71x is trading slightly below its industry peers' ratio of 57.67x, which means if you buy Shenzhen Fortune Trend technology today, you'd be paying a reasonable price for it. And if you believe that Shenzhen Fortune Trend technology 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. Although, there may be an opportunity to buy in the future. This is because Shenzhen Fortune Trend technology's beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Shenzhen Fortune Trend technology?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Though in the case of Shenzhen Fortune Trend technology, it is expected to deliver a relatively unexciting earnings growth of 6.2%, which doesn't help build up its investment thesis. Growth doesn't appear to be a main reason for a buy decision for Shenzhen Fortune Trend technology, at least in the near term.
What This Means For You
Are you a shareholder? 688318's 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 688318? 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 an eye on 688318, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it's worth diving deeper into other factors in order to take advantage of the next price drop.
So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. When we did our research, we found 2 warning signs for Shenzhen Fortune Trend technology (1 doesn't sit too well with us!) that we believe deserve your full attention.
If you are no longer interested in Shenzhen Fortune Trend technology, 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.