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Is There Now An Opportunity In Brilliance China Automotive Holdings Limited (HKG:1114)?

Simply Wall St

Brilliance China Automotive Holdings Limited (HKG:1114), which is in the auto 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 mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at Brilliance China Automotive Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Brilliance China Automotive Holdings

What's the opportunity in Brilliance China Automotive Holdings?

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 Brilliance China Automotive Holdings’s ratio of 6.97x is trading slightly below its industry peers’ ratio of 8.77x, which means if you buy Brilliance China Automotive Holdings today, you’d be paying a fair price for it. And if you believe that Brilliance China Automotive Holdings should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because Brilliance China Automotive Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Brilliance China Automotive Holdings look like?

SEHK:1114 Past and Future Earnings, July 24th 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. Brilliance China Automotive Holdings’s earnings over the next few years are expected to increase by 44%, 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? 1114’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 1114? 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 1114, 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 1114, 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 Brilliance China Automotive Holdings. You can find everything you need to know about Brilliance China Automotive Holdings in the latest infographic research report. If you are no longer interested in Brilliance China Automotive Holdings, 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.