Let's talk about the popular China Construction Bank Corporation (HKG:939). The company's shares received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$6.55 at one point, and dropping to the lows of HK$5.95. 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 China Construction Bank's current trading price of HK$6.09 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at China Construction Bank’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is China Construction Bank 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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that China Construction Bank’s ratio of 5.28x is trading slightly above its industry peers’ ratio of 5.1x, which means if you buy China Construction Bank today, you’d be paying a relatively sensible price for it. And if you believe that China Construction Bank should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, China Construction Bank’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What kind of growth will China Construction Bank generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. Though in the case of China Construction Bank, it is expected to deliver a relatively unexciting earnings growth of 9.8%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in 939’s growth outlook, with shares trading around industry price multiples. 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 939? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on 939, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors 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 Construction Bank. You can find everything you need to know about China Construction Bank in the latest infographic research report. If you are no longer interested in China Construction Bank, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.