CGN New Energy Holdings Co Ltd (HKG:1811): How Much Growth Is Left In Utilities?
CGN New Energy Holdings Co Ltd (HKG:1811), a HK$5.62b small-cap, operates in the utilities industry which faces recent trends of rising cybersecurity threats, increasing usage by consumers and growing number of innovative competitors. Utilities analysts are forecasting for the entire industry, a highly optimistic growth of 32.0% in the upcoming year , and a whopping triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Hong Kong stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether CGN New Energy Holdings is lagging or leading its competitors in the industry.
See our latest analysis for CGN New Energy Holdings
What’s the catalyst for CGN New Energy Holdings’s sector growth?
Aging asset performance with increased expectations on reliability, and new entrants and disruptive technology, are just some of the few key disruption in utilities. In the previous year, the industry saw growth in the teens, though still underperforming the wider Hong Kong stock market. CGN New Energy Holdings leads the pack with its impressive earnings growth of 50.1% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 11.6% compared to the wider utilities sector growth hovering in the thirties next year. As a future industry laggard in growth, CGN New Energy Holdings may be a cheaper stock relative to its peers.
Is CGN New Energy Holdings and the sector relatively cheap?
Utility companies are typically trading at a PE of 11.41x, in-line with the Hong Kong stock market PE of 11.62x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 6.6% compared to the market’s 9.5%, potentially indicative of past headwinds. On the stock-level, CGN New Energy Holdings is trading at a PE ratio of 7.34x, which is relatively in-line with the average utilities stock. In terms of returns, CGN New Energy Holdings generated 10.1% in the past year, which is 3.4% over the utilities sector.
Next Steps:
If CGN New Energy Holdings has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is an utilities industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the utilities sector. However, before you make a decision on the stock, I suggest you look at CGN New Energy Holdings’s fundamentals in order to build a holistic investment thesis.
Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Historical Track Record: What has 1811’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of CGN New Energy Holdings? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
