In This Article:
Guangdong Investment Limited (HKG:270), a large-cap worth HK$88.3b, comes to mind for investors seeking a strong and reliable stock investment. Most investors favour these big stocks due to their strong balance sheet and high market liquidity, meaning there are an abundance of stock in the public market available for trading. These companies are resilient in times of low liquidity and are not as strongly impacted by interest rate hikes as companies with lots of debt. Using the most recent data for 270, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.
View our latest analysis for Guangdong Investment
Does 270 produce enough cash relative to debt?
Over the past year, 270 has reduced its debt from HK$6.6b to HK$5.5b , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at HK$16.8b for investing into the business. Additionally, 270 has produced cash from operations of HK$5.4b during the same period of time, leading to an operating cash to total debt ratio of 98%, signalling that 270’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 270’s case, it is able to generate 0.98x cash from its debt capital.
Can 270 pay its short-term liabilities?
Looking at 270’s most recent HK$10.4b liabilities, it seems that the business has been able to meet these obligations given the level of current assets of HK$25.1b, with a current ratio of 2.42x. Usually, for Water Utilities companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can 270 service its debt comfortably?
With a debt-to-equity ratio of 11%, 270’s debt level may be seen as prudent. 270 is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
270’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near-term obligations, which isn’t a big surprise for a large-cap. This is only a rough assessment of financial health, and I’m sure 270 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Guangdong Investment to get a more holistic view of the stock by looking at:
-
Future Outlook: What are well-informed industry analysts predicting for 270’s future growth? Take a look at our free research report of analyst consensus for 270’s outlook.
-
Valuation: What is 270 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 270 is currently mispriced by the market.
-
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.