Goodbaby International Holdings Limited (HKG:1086), which is in the leisure business, and is based in China, saw significant share price movement during recent months on the SEHK, rising to highs of HK$1.81 and falling to the lows of HK$1.34. 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 Goodbaby International Holdings's current trading price of HK$1.45 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 Goodbaby International Holdings’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 Goodbaby International Holdings?
The stock seems fairly valued at the moment according to my relative valuation model. 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 Goodbaby International Holdings’s ratio of 14.52x is trading slightly above its industry peers’ ratio of 11.02x, which means if you buy Goodbaby International Holdings today, you’d be paying a relatively fair price for it. And if you believe that Goodbaby International Holdings should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since Goodbaby International Holdings’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 Goodbaby International Holdings 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. 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 91% over the next couple of years, the future seems bright for Goodbaby International Holdings. 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? 1086’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 1086? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping an eye on 1086, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for 1086, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Goodbaby International Holdings. You can find everything you need to know about Goodbaby International Holdings in the latest infographic research report. If you are no longer interested in Goodbaby International Holdings, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.