Let's talk about the popular China Life Insurance Company Limited (HKG:2628). 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$22.75 at one point, and dropping to the lows of HK$18.70. 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 Life Insurance's current trading price of HK$19.72 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 Life Insurance’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is China Life Insurance still cheap?
Good news, investors! China Life Insurance is still a bargain right now. My valuation model shows that the intrinsic value for the stock is HK$35.07, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. However, given that China Life Insurance’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from China Life Insurance?
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. However, with a negative profit growth of -3.1% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for China Life Insurance. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Although 2628 is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to 2628, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping tabs on 2628 for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on China Life Insurance. You can find everything you need to know about China Life Insurance in the latest infographic research report. If you are no longer interested in China Life Insurance, 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 firstname.lastname@example.org. 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.
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