Sinopec Shanghai Petrochemical Company Limited (HKG:338), which is in the chemicals business, and is based in China, saw significant share price movement during recent months on the SEHK, rising to highs of HK$3.74 and falling to the lows of HK$2.81. 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 Sinopec Shanghai Petrochemical's current trading price of HK$2.81 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 Sinopec Shanghai Petrochemical’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is Sinopec Shanghai Petrochemical worth?
According to my valuation model, Sinopec Shanghai Petrochemical seems to be fairly priced at around 13.71% above my intrinsic value, which means if you buy Sinopec Shanghai Petrochemical today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth HK$2.47, 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 Sinopec Shanghai Petrochemical’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 Sinopec Shanghai Petrochemical generate?
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 negative profit growth of -11% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Sinopec Shanghai Petrochemical. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, 338 appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on 338 for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on 338 should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Sinopec Shanghai Petrochemical. You can find everything you need to know about Sinopec Shanghai Petrochemical in the latest infographic research report. If you are no longer interested in Sinopec Shanghai Petrochemical, 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.