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$0.91 at one point, and dropping to the lows of HK$0.80. 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$0.87 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.

See our latest analysis for China Dongxiang (Group)

What's the opportunity in China Dongxiang (Group)?

Great news for investors – China Dongxiang (Group) is still trading at a fairly cheap price. My valuation model shows that the intrinsic value for the stock is HK$1.70, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. What’s more interesting is that, China Dongxiang (Group)’s share price is theoretically quite stable, which could mean two things: firstly, it may take the share price a while to move to its intrinsic value, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What does the future of China Dongxiang (Group) look like?

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. Though in the case of China Dongxiang (Group), it is expected to deliver a negative earnings growth of -5.9%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Although 3818 is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to 3818, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on 3818 for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.