Kingsoft Corporation Limited (HKG:3888), which is in the software business, and is based in China, saw a significant share price rise of over 20% in the past couple of months on the SEHK. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Kingsoft’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is Kingsoft still cheap?
Kingsoft appears to be overvalued by 43% at the moment, based on my discounted cash flow valuation. The stock is currently priced at HK$24.85 on the market compared to my intrinsic value of HK$17.39. This means that the buying opportunity has probably disappeared for now. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Kingsoft’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Kingsoft?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With revenue expected to more than double in the next few years, the future appears to be extremely bright for Kingsoft. If expenses can also be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in 3888’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe 3888 should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on 3888 for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for 3888, which means 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 Kingsoft. You can find everything you need to know about Kingsoft in the latest infographic research report. If you are no longer interested in Kingsoft, 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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