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BAIC Motor Corporation Limited (HKG:1958), which is in the auto business, and is based in China, saw significant share price movement during recent months on the SEHK, rising to highs of HK$6.42 and falling to the lows of HK$4.5. 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 BAIC Motor's current trading price of HK$4.5 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 BAIC Motor’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
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See our latest analysis for BAIC Motor
What is BAIC Motor worth?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 8.04x is currently trading slightly below its industry peers’ ratio of 9.27x, which means if you buy BAIC Motor today, you’d be paying a fair price for it. And if you believe that BAIC Motor should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because BAIC Motor’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What kind of growth will BAIC Motor 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. BAIC Motor’s earnings over the next few years are expected to increase by 55%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in 1958’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at 1958? Will you have enough confidence to invest in the company should the price drop below its fair value?