China MeiDong Auto Holdings Limited (HKG:1268), which is in the specialty retail business, and is based in China, received a lot of attention from a substantial price increase on the SEHK over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on China MeiDong Auto Holdings’s outlook and valuation to see if the opportunity still exists.
Is China MeiDong Auto 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 15.76x is currently trading slightly above its industry peers’ ratio of 12.04x, which means if you buy China MeiDong Auto Holdings today, you’d be paying a relatively fair price for it. And if you believe China MeiDong Auto Holdings should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since China MeiDong Auto Holdings’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.
What does the future of China MeiDong Auto Holdings look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 69% over the next couple of years, the future seems bright for China MeiDong Auto Holdings. 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? It seems like the market has already priced in 1268’s positive outlook, 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 1268? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on 1268, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for 1268, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on China MeiDong Auto Holdings. You can find everything you need to know about China MeiDong Auto Holdings in the latest infographic research report. If you are no longer interested in China MeiDong Auto Holdings, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.