Let's talk about the popular Guangzhou Automobile Group Co., Ltd. (HKG:2238). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Guangzhou Automobile Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Guangzhou Automobile Group

Is Guangzhou Automobile Group still cheap?

The stock is currently trading at HK$9.27 on the share market, which means it is overvalued by 29% compared to my intrinsic value of HK$7.17. This means that the buying opportunity has probably disappeared for now. Another thing to keep in mind is that Guangzhou Automobile Group’s share price is quite stable relative to the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

What kind of growth will Guangzhou Automobile Group generate?

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. With profit expected to grow by 43% over the next couple of years, the future seems bright for Guangzhou Automobile Group. 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? It seems like the market has well and truly priced in 2238’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe 2238 should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 2238 for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for 2238, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.