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Towngas China Company Limited (HKG:1083), which is in the gas utilities business, and is based in Hong Kong, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$7.94 at one point, and dropping to the lows of HK$5.4. 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 Towngas China’s current trading price of HK$5.71 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 Towngas China’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for Towngas China
What is Towngas China worth?
Great news for investors – Towngas China is still trading at a fairly cheap price. 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 11.07x is currently well-below the industry average of 16.21x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, Towngas China’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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 does the future of Towngas China look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 grow by a double-digit 17% over the next couple of years, the outlook is positive for Towngas China. 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? Since 1083 is currently undervalued, it may be a great time to increase your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.
Are you a potential investor? If you’ve been keeping an eye on 1083 for a while, now might be the time to enter the stock. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy 1083. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed buy.