Let’s talk about the popular The Hong Kong and China Gas Company Limited (SEHK:3). The company’s shares maintained its current share price over the past couple of month on the SEHK, with a relatively tight range of HK$14.68 to HK$15.5. However, does this price actually reflect the true value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Hong Kong and China Gas’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View our latest analysis for Hong Kong and China Gas
What’s the opportunity in Hong Kong and China Gas?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 28.08x is currently trading slightly above its industry peers’ ratio of 23.11x, which means if you buy Hong Kong and China Gas today, you’d be paying a relatively reasonable price for it. And if you believe Hong Kong and China Gas should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. In addition to this, it seems like Hong Kong and China Gas’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
Can we expect growth from Hong Kong and China Gas?
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. Though in the case of Hong Kong and China Gas, it is expected to deliver a relatively unexciting earnings growth of 9.13%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in Hong Kong and China Gas’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 Hong Kong and China Gas? Will you have enough confidence to invest in the company should the price drop below its fair value?