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Melco International Development Limited (HKG:200), which is in the hospitality business, and is based in Hong Kong, saw significant share price volatility over the past couple of months on the SEHK, rising to the highs of HK$24.6 and falling to the lows of HK$15.36. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Melco International Development’s current trading price of HK$15.68 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Melco International Development’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 Melco International Development
What is Melco International Development worth?
According to my relative valuation model, the stock is currently overvalued. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 36.6x is currently well-above the industry average of 15.08x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Melco International Development’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Melco International Development 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. With profit expected to more than double over the next couple of years, the future seems bright for Melco International Development. 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 200’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe 200 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.