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Brilliance China Automotive Holdings Limited (HKG:1114), which is in the auto business, and is based in Hong Kong, saw a decent share price growth in the teens level on the SEHK over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on Brilliance China Automotive Holdings’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for Brilliance China Automotive Holdings
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Is Brilliance China Automotive Holdings still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 5.15x is currently trading slightly below its industry peers’ ratio of 7.53x, which means if you buy Brilliance China Automotive Holdings today, you’d be paying a reasonable price for it. And if you believe that Brilliance China Automotive Holdings 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 Brilliance China Automotive Holdings’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 kind of growth will Brilliance China Automotive Holdings generate?
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. Brilliance China Automotive Holdings’s earnings over the next few years are expected to increase by 47%, 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? 1114’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 1114? Will you have enough conviction to buy should the price fluctuate below the true value?