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China Resources Cement Holdings Limited (HKG:1313), which is in the basic materials business, and is based in Hong Kong, led the SEHK gainers with a relatively large price hike in the past couple of weeks. 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, what if the stock is still a bargain? Let’s examine China Resources Cement Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
View our latest analysis for China Resources Cement Holdings
Is China Resources Cement Holdings still cheap?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 8.44x is currently trading slightly above its industry peers’ ratio of 5.49x, which means if you buy China Resources Cement Holdings today, you’d be paying a relatively reasonable price for it. And if you believe that China Resources Cement Holdings should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that China Resources Cement 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 does the future of China Resources Cement Holdings look like?
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. 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. Though in the case of China Resources Cement Holdings, it is expected to deliver a relatively unexciting earnings growth of 3.8%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in 1313’s growth outlook, 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 1313? Will you have enough conviction to buy should the price fluctuate below the true value?