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China Yongda Automobiles Services Holdings Limited (HKG:3669), a HK$11.67b small-cap, is a retail company operating in an industry which has experienced a structural shift in terms of digitalization. Growth has been a result of investment in streamlining distribution and improving website platforms to accommodate the shift in spending. Retail analysts are forecasting for the entire industry, a positive double-digit growth of 20.2% in the upcoming year , and a whopping growth of 54.0% over the next couple of years. However this rate still came in below the growth rate of the Hong Kong stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether China Yongda Automobiles Services Holdings is a laggard or leader relative to its retail peers.
Check out our latest analysis for China Yongda Automobiles Services Holdings
What’s the catalyst for China Yongda Automobiles Services Holdings’s sector growth?
E-commerce continues to be the fastest growing sales platform for consumer goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. Over the past year, the industry saw growth in the thirties, beating the Hong Kong market growth of 14.7%. China Yongda Automobiles Services Holdings leads the pack with its impressive earnings growth of 41.2% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with China Yongda Automobiles Services Holdings poised to deliver a 24.6% growth over the next couple of years compared to the industry’s 20.2%. This growth may make China Yongda Automobiles Services Holdings a more expensive stock relative to its peers.
Is China Yongda Automobiles Services Holdings and the sector relatively cheap?
The retail industry is trading at a PE ratio of 10.05x, relatively similar to the rest of the Hong Kong stock market PE of 11.43x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.8% on equities compared to the market’s 9.5%. On the stock-level, China Yongda Automobiles Services Holdings is trading at a PE ratio of 6.35x, which is relatively in-line with the average retail stock. In terms of returns, China Yongda Automobiles Services Holdings generated 18.6% in the past year, which is 7.8% over the retail sector.
Next Steps:
China Yongda Automobiles Services 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 China Yongda Automobiles Services 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 China Yongda Automobiles Services Holdings’s fundamentals in order to build a holistic investment thesis.