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West China Cement Limited (HKG:2233), which is in the basic materials business, and is based in China, saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s take a look at West China Cement’s outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for West China Cement
What is West China Cement worth?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 5.54x is currently trading slightly below its industry peers’ ratio of 9.03x, which means if you buy West China Cement today, you’d be paying a reasonable price for it. And if you believe that West China Cement should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since West China Cement’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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 West China Cement 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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. West China Cement’s earnings over the next few years are expected to increase by 37.3%, 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? 2233’s optimistic future growth appears to have been factored into the current share price, 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 2233? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on 2233, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for 2233, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.