NetDragon Websoft Holdings Limited (HKG:777), which is in the entertainment business, and is based in China, saw a significant share price rise of over 20% in the past couple of months on the SEHK. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine NetDragon Websoft Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What's the opportunity in NetDragon Websoft Holdings?
According to my valuation model, NetDragon Websoft Holdings seems to be fairly priced at around 6.1% below my intrinsic value, which means if you buy NetDragon Websoft Holdings today, you’d be paying a fair price for it. And if you believe the company’s true value is HK$24.49, 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 NetDragon Websoft 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 kind of growth will NetDragon Websoft Holdings generate?
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. 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 profit expected to grow by 37% over the next couple of years, the future seems bright for NetDragon Websoft Holdings. 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? 777’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on 777, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, 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 NetDragon Websoft Holdings. You can find everything you need to know about NetDragon Websoft Holdings in the latest infographic research report. If you are no longer interested in NetDragon Websoft 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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