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Is It Time To Consider Buying Industrial and Commercial Bank of China Limited (HKG:1398)?

Simply Wall St

Industrial and Commercial Bank of China Limited (HKG:1398) saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today I will analyse the most recent data on Industrial and Commercial Bank of China’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Industrial and Commercial Bank of China

What's the opportunity in Industrial and Commercial Bank of China?

According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 5.9x is currently trading in-line with its industry peers’ ratio, which means if you buy Industrial and Commercial Bank of China today, you’d be paying a relatively reasonable price for it. Is there another opportunity to buy low in the future? Since Industrial and Commercial Bank of China’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Industrial and Commercial Bank of China generate?

SEHK:1398 Past and Future Earnings, November 12th 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. 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. With profit expected to grow by a double-digit 12% over the next couple of years, the outlook is positive for Industrial and Commercial Bank of China. 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 already priced in 1398’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 1398? 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 an eye on 1398, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for 1398, 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 Industrial and Commercial Bank of China. You can find everything you need to know about Industrial and Commercial Bank of China in the latest infographic research report. If you are no longer interested in Industrial and Commercial Bank of China, 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.