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SOHO China Limited (HKG:410), a real estate company based in China, saw significant share price volatility over the past couple of months on the SEHK, rising to the highs of HK$4.17 and falling to the lows of HK$3.09. 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 SOHO China’s current trading price of HK$3.14 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 SOHO China’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 SOHO China
What is SOHO China 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 SOHO China’s ratio of 7.7x is trading slightly above its industry peers’ ratio of 6.47x, which means if you buy SOHO China today, you’d be paying a relatively fair price for it. And if you believe SOHO China should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since SOHO China’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. 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 kind of growth will SOHO China generate?
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. 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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for SOHO China, at least in the near future.
What this means for you:
Are you a shareholder? 410 seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 410, take a look at whether its fundamentals have changed.