Should You Investigate Sun Hung Kai Properties Limited (HKG:16) At HK$114?
Let's talk about the popular Sun Hung Kai Properties Limited (HKG:16). 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$122 at one point, and dropping to the lows of HK$107. 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 Sun Hung Kai Properties's current trading price of HK$114 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 Sun Hung Kai Properties’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for Sun Hung Kai Properties
What's the opportunity in Sun Hung Kai Properties?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 7.36x is currently trading slightly above its industry peers’ ratio of 6.39x, which means if you buy Sun Hung Kai Properties today, you’d be paying a relatively fair price for it. And if you believe that Sun Hung Kai Properties should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Sun Hung Kai Properties’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Sun Hung Kai Properties look like?
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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Sun Hung Kai Properties, at least in the near future.
What this means for you:
Are you a shareholder? 16 seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 16, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on 16 for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on 16 should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Sun Hung Kai Properties. You can find everything you need to know about Sun Hung Kai Properties in the latest infographic research report. If you are no longer interested in Sun Hung Kai Properties, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
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. Thank you for reading.
