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Is Bright Scholar Education Holdings Limited (NYSE:BEDU) Potentially Undervalued?

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While Bright Scholar Education Holdings Limited (NYSE:BEDU) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$6.59 at one point, and dropping to the lows of US$5.17. 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 Bright Scholar Education Holdings' current trading price of US$5.17 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 Bright Scholar Education Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Bright Scholar Education Holdings

What is Bright Scholar Education Holdings worth?

Bright Scholar Education Holdings appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Bright Scholar Education Holdings’s ratio of 61.45x is above its peer average of 20.27x, which suggests the stock is trading at a higher price compared to the Consumer Services industry. Another thing to keep in mind is that Bright Scholar Education Holdings’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What does the future of Bright Scholar Education Holdings look like?

earnings-and-revenue-growth
earnings-and-revenue-growth

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. In Bright Scholar Education Holdings' case, its revenues over the next few years are expected to grow by 37%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth 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 well and truly priced in BEDU’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe BEDU should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on BEDU for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for BEDU, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Bright Scholar Education Holdings as a business, it's important to be aware of any risks it's facing. When we did our research, we found 5 warning signs for Bright Scholar Education Holdings (1 is significant!) that we believe deserve your full attention.

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

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.