Dah Sing Financial Holdings Limited (HKG:440), operating in the financial services industry based in Hong Kong, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$31.30 at one point, and dropping to the lows of HK$27.85. 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 Dah Sing Financial Holdings's current trading price of HK$28.00 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 Dah Sing Financial Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is Dah Sing Financial Holdings worth?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 Dah Sing Financial Holdings’s ratio of 4.66x is trading slightly below its industry peers’ ratio of 5.73x, which means if you buy Dah Sing Financial Holdings today, you’d be paying a reasonable price for it. And if you believe that Dah Sing Financial Holdings should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Dah Sing Financial Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of Dah Sing Financial Holdings 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. 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. Though in the case of Dah Sing Financial Holdings, it is expected to deliver a negative earnings growth of -1.7%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, 440 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 de-risk 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 440, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on 440 for a while, now may not be the most advantageous 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. In addition to this, 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 crystalize your views on 440 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 Dah Sing Financial Holdings. You can find everything you need to know about Dah Sing Financial Holdings in the latest infographic research report. If you are no longer interested in Dah Sing Financial Holdings, 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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