While Lenovo Group Limited (HKG:992) may not be the best-known stock right now, it has seen a double-digit share price rise of more than 10% in the past two months on the SEHK. As a mid-cap stock with high analyst coverage, you can assume that any recent changes in the company’s outlook are already priced into the stock. However, could the stock still trade at a relatively cheap price? Let’s take a closer look at Lenovo Group’s valuation and outlook to see if there’s still a bargain opportunity.
What is the opportunity in the Lenovo Group?
According to my multiple price model, which compares the company’s price-earnings ratio to the industry average, the stock price seems justified. In this case, I used the Price/Earnings (PE) ratio since there is not enough information to reliably predict the stock’s cash flow. I find that Lenovo Group’s 4.5x ratio trades slightly below the 8.35x ratio of its industry peers, which means that if you buy Lenovo Group today, you’ll pay a decent price for it. And if you think Lenovo Group should be trading at this level for the long term, there’s not a lot of upside to gain over other industry peers. Although there may be an opportunity to buy in the future. This is because Lenovo Group’s beta (a measure of stock price volatility) is high, which means that its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s stock will likely fall more than the rest of the market, providing an excellent buying opportunity.
What kind of growth will Lenovo Group generate?
Investors looking for portfolio growth may want to consider a company’s prospects before buying its stock. Although value investors argue that it is intrinsic value relative to price that matters most, a more compelling investment thesis would be high growth potential at a cheap price. Although in the case of Lenovo Group, it is expected to post negative earnings growth of -4.7%, which does not help bolster its investment thesis. It seems that the risk of future uncertainty is high, at least in the short term.
What this means for you
Are you a shareholder? The price of 992 currently looks close to its industry peers, but given the uncertainty of negative returns going forward, now could be a good time to de-risk your portfolio. Is your current exposure to the security optimal for your entire portfolio? And is the opportunity cost of holding a stock with a negative outlook too high? Before deciding on 992, see if its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on 992 for a while, now might not be the best time to buy, given that it’s trading around industry price multiples. This means that there is less benefit from erroneous prices. Additionally, the negative growth outlook increases the risk of owning the stock. However, there are also other important factors that we have not considered today that can help crystallize your opinion on 992 if the price fluctuates below the industry PE ratio.
It can be very useful to consider what analysts expect from the Lenovo Group based on their most recent forecasts. Fortunately, you can consult what analysts predict by clicking here.
If you are no longer interested in Lenovo Group, you can use our free platform to see our list of more 50 other stocks with strong growth potential.
Valuation is complex, but we help make it simple.
Find out if Lenovo Group is potentially overvalued or undervalued by viewing our full analysis, which includes fair value estimates, risks and warnings, dividends, insider trading and financial health.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.