While AEM Holdings Ltd. (SGX:AWX) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the SGX over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine AEM Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What Is AEM Holdings Worth?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 AEM Holdings’s ratio of 7.61x is trading slightly below its industry peers’ ratio of 9.61x, which means if you buy AEM Holdings today, you’d be paying a reasonable price for it. And if you believe that AEM Holdings should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because AEM 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 AEM Holdings look like?
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 -20% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for AEM Holdings. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? Currently, AWX appears to be trading around industry price multiples, 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on AWX, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on AWX for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This 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 gel your views on AWX should the price fluctuate below the industry PE ratio.
If you'd like to know more about AEM Holdings as a business, it's important to be aware of any risks it's facing. For instance, we've identified 2 warning signs for AEM Holdings (1 doesn't sit too well with us) you should be familiar with.
If you are no longer interested in AEM Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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