Shares of Yangtze Optical Fibre and Cable Joint Stock Limited Company (YOFC) plunged 12.71% on Wednesday's intraday trading session under the stock code 6869. The steep sell-off came amidst concerns over potential overvaluation of the company's stock based on a discounted cash flow (DCF) analysis.
According to the DCF valuation model, YOFC's estimated fair value stands at HK$22.54, which is around 23% higher than its current share price of HK$17.46. The analysis considers various assumptions, including the company's projected future cash flows, growth rates, and a discount rate of 8%. However, the valuation is highly sensitive to changes in these assumptions, potentially leading to overvaluation or undervaluation concerns.
While the DCF analysis suggests that YOFC might be undervalued, investors may have reacted negatively to certain weaknesses highlighted in the analysis, such as declining earnings over the past year and the company's debt coverage by operating cash flows. Additionally, the projected earnings growth for YOFC is forecasted to be slower than the Hong Kong market average, which could have further fueled the sell-off.
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