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Is Now An Opportune Moment To Examine China Everbright Limited (HKG:165)?

Simply Wall St

China Everbright Limited (HKG:165), which is in the capital markets business, and is based in Hong Kong, led the SEHK gainers with a relatively large price hike in the past couple of weeks. As a HK$20b market-cap stock, it seems odd China Everbright is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at China Everbright’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for China Everbright

What is China Everbright worth?

The stock seems fairly valued at the moment according to my relative valuation model. 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 Everbright’s ratio of 8.17x is trading slightly below its industry peers’ ratio of 11.87x, which means if you buy China Everbright today, you’d be paying a fair price for it. And if you believe that China Everbright should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Furthermore, China Everbright’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 does the future of China Everbright look like?

SEHK:165 Past and Future Earnings, November 1st 2019

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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With revenues expected to grow by 42% over the next year, the future seems bright for China Everbright. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock in the upcoming year, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has already priced in 165’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at 165? Will you have enough conviction to buy should the price fluctuate below the true value?

Are you a potential investor? If you’ve been keeping tabs on 165, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for 165, 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 Everbright. You can find everything you need to know about China Everbright in the latest infographic research report. If you are no longer interested in China Everbright, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

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.

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. Thank you for reading.