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Central China Real Estate Limited (HKG:832), which is in the real estate business, and is based in China, saw significant share price volatility over the past couple of months on the SEHK, rising to the highs of HK$3.47 and falling to the lows of HK$2.86. 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 Central China Real Estate’s current trading price of HK$2.88 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Central China Real Estate’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 Central China Real Estate
What’s the opportunity in Central China Real Estate?
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 Central China Real Estate’s ratio of 6.56x is trading slightly above its industry peers’ ratio of 5.16x, which means if you buy Central China Real Estate today, you’d be paying a relatively fair price for it. And if you believe that Central China Real Estate should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since Central China Real Estate’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.
Can we expect growth from Central China Real Estate?
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. With profit expected to grow by 86% over the next couple of years, the future seems bright for Central China Real Estate. 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? 832’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 track record of its management team. Have these factors changed since the last time you looked at 832? Will you have enough confidence to invest in the company should the price drop below its fair value?