Let's talk about the popular Huazhu Group Limited (NASDAQ:HTHT). The company's shares received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$60.93 at one point, and dropping to the lows of US$52.79. 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 Huazhu Group's current trading price of US$53.68 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 Huazhu Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Huazhu Group?
Huazhu Group appears to be overvalued by 37% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$53.68 on the market compared to my intrinsic value of $39.31. This means that the buying opportunity has probably disappeared for now. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Huazhu Group’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.
What kind of growth will Huazhu Group generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 88% over the next couple of years, the future seems bright for Huazhu Group. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in HTHT’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe HTHT should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on HTHT for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for HTHT, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
If you'd like to know more about Huazhu Group as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for Huazhu Group (of which 1 shouldn't be ignored!) you should know about.
If you are no longer interested in Huazhu Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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