K Wah International Holdings Limited (HKG:173), a HK$13.75b small-cap, is a real estate company operating in an industry which is the most prevalent industry globally, and has continued to play a crucial role in the portfolios of investors. Real estate analysts are forecasting for the entire industry, a strong double-digit growth of 11.5% in the upcoming year , and an enormous growth of 80.9% over the next couple of years. This rate is larger than the growth rate of the Hong Kong stock market as a whole. Today, I’ll take you through the real estate sector outlook, as well as evaluate whether K. Wah International Holdings is lagging or leading in the industry.

Check out our latest analysis for K. Wah International Holdings

What’s the catalyst for K. Wah International Holdings’s sector growth?

Not every category of real estate is likely to be impacted the same by macroeconomic factors. Investors should remain cautiously optimistic of the underlying industry. Over the past year, the industry saw growth in the forties, beating the Hong Kong market growth of 15.3%. K. Wah International Holdings lags the pack with its negative growth rate of -32.6% over the past year, which indicates the company has been growing at a slower pace than its real estate peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 72.1% in the upcoming year. This future growth may make K. Wah International Holdings a more expensive stock relative to its peers.

Is K. Wah International Holdings and the sector relatively cheap?

The real estate sector’s PE is currently hovering around 6.42x, below the broader Hong Kong stock market PE of 12.07x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 9.4% on equities compared to the market’s 9.7%. On the stock-level, K. Wah International Holdings is trading at a PE ratio of 5.76x, which is relatively in-line with the average real estate stock. In terms of returns, K. Wah International Holdings generated 8.0% in the past year, which is 1.4% below the real estate sector.

Next Steps:

K. Wah International Holdings’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If K. Wah International Holdings has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at K. Wah International Holdings’s fundamentals in order to build a holistic investment thesis.