Today we’re going to take a look at the well-established China Telecom Corporation Limited (HKG:728). The company’s stock saw a decent share price growth in the teens level on the SEHK over the last few months. As a large-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, could the stock still be trading at a relatively cheap price? Let’s examine China Telecom’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What’s the opportunity in China Telecom?
According to my valuation model, China Telecom seems to be fairly priced at around 17% below my intrinsic value, which means if you buy China Telecom today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth HK$4.77, then there isn’t much room for the share price grow beyond what it’s currently trading. In addition to this, China Telecom has a low beta, which suggests its share price is less volatile than the wider market.
Can we expect growth from China Telecom?
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. With profit expected to grow by 63% over the next couple of years, the future seems bright for China Telecom. 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? 728’s optimistic future growth appears to have been factored into the current share price, 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 the stock? 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 tabs on 728, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining 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 Telecom. You can find everything you need to know about China Telecom in the latest infographic research report. If you are no longer interested in China Telecom, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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 firstname.lastname@example.org.