Fanhua Inc. (NASDAQ:FANH), which is in the insurance business, and is based in China, saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$27.07 and falling to the lows of US$16.26. 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 Fanhua's current trading price of US$17.09 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 Fanhua’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 Fanhua?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 15% below my intrinsic value, which means if you buy Fanhua today, you’d be paying a reasonable price for it. And if you believe the company’s true value is $20.09, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Fanhua’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 does the future of Fanhua look like?
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. However, with a relatively muted profit growth of 3.3% expected over the next year, growth doesn’t seem like a key driver for a buy decision for Fanhua, at least in the short term.
What this means for you:
Are you a shareholder? FANH’s 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 financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on FANH, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Fanhua. You can find everything you need to know about Fanhua in the latest infographic research report. If you are no longer interested in Fanhua, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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