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Guangzhou Automobile Group Co Ltd (HKG:2238) received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$8.7 at one point, and dropping to the lows of HK$6.79. 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 Guangzhou Automobile Group’s current trading price of HK$7.27 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Guangzhou Automobile Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for Guangzhou Automobile Group
What is Guangzhou Automobile Group worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Guangzhou Automobile Group’s ratio of 7.48x is trading slightly below its industry peers’ ratio of 8.56x, which means if you buy Guangzhou Automobile Group today, you’d be paying a fair price for it. And if you believe that Guangzhou Automobile Group should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Guangzhou Automobile Group’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Guangzhou Automobile Group look like?
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. With profit expected to grow by 25% over the next couple of years, the future seems bright for Guangzhou Automobile Group. 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? It seems like the market has already priced in 2238’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 2238? Will you have enough confidence to invest in the company should the price drop below its fair value?