Tian Shan Development (Holding) Limited (SEHK:2118), a HKDHK$2.83B small-cap, is a real estate company operating in an industry which displays attractive investment characteristics relative to other sectors, especially over time. Real estate analysts are forecasting for the entire industry, a relatively muted growth of 0.32% in the upcoming year , and a strong near-term growth of 21.36% over the next couple of years. However, this rate came in below the growth rate of the Hong Kong stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Tian Shan Development (Holding) is a laggard or leader relative to its real estate sector peers. View our latest analysis for Tian Shan Development (Holding)

What’s the catalyst for Tian Shan Development (Holding)’s sector growth?

Not every category of real estate is likely to be impacted the same by macroeconomic factors such as interest rate hikes, and not all locations are primed to grow. So, investors must remain cautiously optimistic and analyse the fundamentals of the underlying industry. In the past year, the industry delivered growth in the twenties, beating the Hong Kong market growth of 11.29%. Tian Shan Development (Holding) lags the pack with its negative growth rate of -37.33% over the past year, which indicates the company will be growing at a slower pace than its real estate peers. As the company trails the rest of the industry in terms of growth, Tian Shan Development (Holding) may also be a cheaper stock relative to its peers.

Is Tian Shan Development (Holding) and the sector relatively cheap?

The real estate industry is trading at a PE ratio of 7x, lower than the rest of the Hong Kong stock market PE of 14x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 10.60% on equities compared to the market’s 10.07%. On the stock-level, Tian Shan Development (Holding) is trading at a higher PE ratio of 18x, making it more expensive than the average real estate stock. In terms of returns, Tian Shan Development (Holding) generated 6.10% in the past year, which is 5% below the real estate sector.

What this means for you:

Are you a shareholder? Tian Shan Development (Holding) has been a real estate industry laggard in the past year. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis. This may indicate it is the right time to sell out of the stock, if your initial investment thesis is around the growth prospects of Tian Shan Development (Holding), since there are other real estate companies that have delivered higher growth, and are possibly trading at a cheaper price as well.

Are you a potential investor? If Tian Shan Development (Holding) has been on your watchlist for a while, now may be the best time to enter into the stock. Its lagging growth rate compared to its real estate peers in the near term doesn’t build up its investment thesis, and in addition to this, it is also trading at a PE above these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector.

For a deeper dive into Tian Shan Development (Holding)’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.

To help readers see pass 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.