Should You Think About Buying Sarine Technologies Ltd. (SGX:U77) Now?

Sarine Technologies Ltd. (SGX:U77), might not be a large cap stock, but it saw a decent share price growth in the teens level on the SGX over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Sarine Technologies’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Sarine Technologies

What's The Opportunity In Sarine Technologies?

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 Sarine Technologies’s ratio of 12.97x is trading slightly above its industry peers’ ratio of 9.8x, which means if you buy Sarine Technologies today, you’d be paying a relatively sensible price for it. And if you believe that Sarine Technologies should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since Sarine Technologies’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Sarine Technologies generate?

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. However, with a negative profit growth of -16% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Sarine Technologies. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, U77 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 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 U77, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on U77 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 crystallize your views on U77 should the price fluctuate below the industry PE ratio.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with Sarine Technologies (including 1 which is significant).

If you are no longer interested in Sarine Technologies, 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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