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Metallurgical Corporation of China Ltd (HKG:1618), which is in the construction business, and is based in China, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$2.26 at one point, and dropping to the lows of HK$1.86. 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 Metallurgical of China’s current trading price of HK$2.04 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 Metallurgical of 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 Metallurgical of China
What’s the opportunity in Metallurgical of China?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Metallurgical of China’s ratio of 6.46x is trading slightly below its industry peers’ ratio of 11.23x, which means if you buy Metallurgical of China today, you’d be paying a reasonable price for it. And if you believe Metallurgical of China should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. In addition to this, it seems like Metallurgical of China’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will Metallurgical of China generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Metallurgical of China’s earnings over the next few years are expected to increase by 79%, 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? 1618’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 financial strength of the company. Have these factors changed since the last time you looked at 1618? Will you have enough confidence to invest in the company should the price drop below its fair value?