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Is Daqo New Energy Corp. (NYSE:DQ) Potentially Undervalued?

Dale Lombardi

Daqo New Energy Corp. (NYSE:DQ), which is in the semiconductor business, and is based in China, led the NYSE gainers with a relatively large price hike in the past couple of weeks. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Daqo New Energy’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

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What is Daqo New Energy worth?

Good news, investors! Daqo New Energy is still a bargain right now. 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 Daqo New Energy’s ratio of 4.08x is below its peer average of 17.33x, which suggests the stock is undervalued compared to the Semiconductor industry. What’s more interesting is that, Daqo New Energy’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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 does the future of Daqo New Energy look like?

NYSE:DQ Future Profit January 30th 19

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. Though in the case of Daqo New Energy, it is expected to deliver a relatively unexciting earnings growth of 1.5%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.

What this means for you:

Are you a shareholder? Even though growth is relatively muted, since DQ is currently undervalued, it may be a great time to accumulate more of your holdings in the stock. However, there are also other factors such as financial health to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping an eye on DQ for a while, now might be the time to enter the stock. Its future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy DQ. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed buy.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Daqo New Energy. You can find everything you need to know about Daqo New Energy in the latest infographic research report. If you are no longer interested in Daqo New Energy, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.