Hua Hong Semiconductor Limited (HKG:1347), which is in the semiconductor business, and is based in China, saw significant share price movement during recent months on the SEHK, rising to highs of HK$17.68 and falling to the lows of HK$12.98. 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 Hua Hong Semiconductor's current trading price of HK$14.02 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Hua Hong Semiconductor’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 Hua Hong Semiconductor?
According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 12.14x is currently trading slightly below its industry peers’ ratio of 12.53x, which means if you buy Hua Hong Semiconductor today, you’d be paying a fair price for it. And if you believe Hua Hong Semiconductor should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Furthermore, it seems like Hua Hong Semiconductor’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Hua Hong Semiconductor look like?
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 Hua Hong Semiconductor, it is expected to deliver a relatively unexciting earnings growth of 3.6%, 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? It seems like the market has already priced in 1347’s growth outlook, 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 1347? 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 1347, now may not be the most optimal time to buy, given it is trading around its fair value. 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.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Hua Hong Semiconductor. You can find everything you need to know about Hua Hong Semiconductor in the latest infographic research report. If you are no longer interested in Hua Hong Semiconductor, 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 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.
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