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Guangzhou R&F Properties Co., Ltd. (HKG:2777), which is in the real estate business, and is based in China, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$15.18 at one point, and dropping to the lows of HK$11.16. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Guangzhou R&F Properties's current trading price of HK$11.40 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 Guangzhou R&F Properties’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for Guangzhou R&F Properties
What is Guangzhou R&F Properties worth?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 3.88x is currently trading slightly below its industry peers’ ratio of 6.65x, which means if you buy Guangzhou R&F Properties today, you’d be paying a reasonable price for it. And if you believe Guangzhou R&F Properties should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Guangzhou R&F Properties’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 Guangzhou R&F Properties?
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. Guangzhou R&F Properties’s earnings over the next few years are expected to increase by 80%, 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? 2777’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. 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 2777? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?