In This Article:
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
China Dongxiang (Group) Co., Ltd. (HKG:3818), which is in the luxury business, and is based in China, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$1.2 at one point, and dropping to the lows of HK$0.95. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether China Dongxiang (Group)'s current trading price of HK$0.95 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at China Dongxiang (Group)’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for China Dongxiang (Group)
What's the opportunity in China Dongxiang (Group)?
China Dongxiang (Group) appears to be overvalued according to my relative valuation model. 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 China Dongxiang (Group)’s ratio of 15.31x is above its peer average of 9.72x, which suggests the stock is overvalued compared to the Luxury industry. Another thing to keep in mind is that China Dongxiang (Group)’s share price is quite stable relative to the rest of 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 China Dongxiang (Group) 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. 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. China Dongxiang (Group)’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? 3818’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe 3818 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.