Metallurgical Corporation of China Ltd. (HKG:1618), which is in the construction business, and is based in China, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$1.80 at one point, and dropping to the lows of HK$1.60. 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 Metallurgical Corporation of China's current trading price of HK$1.71 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Metallurgical Corporation of China’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is Metallurgical Corporation of China still cheap?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 Metallurgical Corporation of China’s ratio of 5.52x is trading slightly below its industry peers’ ratio of 9.91x, which means if you buy Metallurgical Corporation of China today, you’d be paying a reasonable price for it. And if you believe that Metallurgical Corporation of China should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Metallurgical Corporation of China’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.
Can we expect growth from Metallurgical Corporation of China?
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. Metallurgical Corporation of China’s earnings over the next few years are expected to increase by 53%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in 1618’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 1618? 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 1618, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for 1618, which means it’s worth diving deeper into 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 Metallurgical Corporation of China. You can find everything you need to know about Metallurgical Corporation of China in the latest infographic research report. If you are no longer interested in Metallurgical Corporation of China, 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 email@example.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.