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Performance in the real estate sector generally tracks the economic cycle. During periods of high growth and inflation, real estate investments usually post strong returns. However, during an economic bust, these investments tend to underperform. Currently, Chen Xing Development Holdings and Golden Wheel Tiandi Holdings are real estate companies I’ve identified as potentially undervalued, meaning their share price is below what these companies are actually worth. There’s a few ways you can value a cyclical company. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. Analysing the most recent financial data, I’ve created a list of companies that compare favourably in all criteria, making them potentially good investments.
Chen Xing Development Holdings Limited (SEHK:2286)
Chen Xing Development Holdings Limited, an investment holding company, engages in the development and sale of residential and commercial properties in Mainland China. Formed in 1997, and now run by Wukui Bai, the company now has 181 employees and with the company’s market cap sitting at HKD HK$995.00M, it falls under the small-cap group.
2286’s shares are currently hovering at around -96% beneath its actual value of ¥44.76, at a price tag of HK$1.99, based on its expected future cash flows. The discrepancy signals an opportunity to buy low. What’s even more appeal is that 2286’s PE ratio is trading at around 5.95x relative to its Real Estate peer level of, 8.08x indicating that relative to its comparable company group, you can buy 2286 for a cheaper price. 2286 is also a financially healthy company, as current assets can cover liabilities in the near term and over the long run.
Continue research on Chen Xing Development Holdings here.
Golden Wheel Tiandi Holdings Company Limited (SEHK:1232)
Golden Wheel Tiandi Holdings Company Limited, an investment holding company, owns, develops, and operates integrated commercial and residential properties in the People’s Republic of China. Established in 1994, and currently run by Kam Wong, the company employs 506 people and with the company’s market capitalisation at HKD HK$1.37B, we can put it in the small-cap stocks category.
1232’s stock is now floating at around -76% lower than its true value of ¥3.17, at the market price of HK$0.76, according to my discounted cash flow model. This mismatch signals an opportunity to buy 1232 shares at a discount. In addition to this, 1232’s PE ratio is trading at around 2.52x against its its Real Estate peer level of, 8.08x indicating that relative to its competitors, 1232’s stock can be bought at a cheaper price. 1232 is also in great financial shape, with near-term assets able to cover upcoming and long-term liabilities.