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Is It Time To Consider Buying Weichai Power Co., Ltd. (HKG:2338)?

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Simply Wall St
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Let's talk about the popular Weichai Power Co., Ltd. (HKG:2338). The company's shares saw a decent share price growth in the teens level on the SEHK over the last few months. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Weichai Power’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Weichai Power

What is Weichai Power 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 Weichai Power’s ratio of 9.44x is trading slightly below its industry peers’ ratio of 9.99x, which means if you buy Weichai Power today, you’d be paying a fair price for it. And if you believe that Weichai Power 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 Weichai Power’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.

What does the future of Weichai Power look like?

SEHK:2338 Past and Future Earnings, October 28th 2019
SEHK:2338 Past and Future Earnings, October 28th 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. However, with a relatively muted profit growth of 1.3% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Weichai Power, at least in the short term.

What this means for you:

Are you a shareholder? It seems like the market has already priced in 2338’s growth outlook, 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 2338? 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 2338, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive growth outlook may mean it’s worth diving deeper into other factors 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 Weichai Power. You can find everything you need to know about Weichai Power in the latest infographic research report. If you are no longer interested in Weichai Power, 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.