China Oceanwide Holdings Limited (SEHK:715), a HKDHK$9.20B small-cap, is a real estate company operating in an industry which is the most prevalent industry globally, and has continued to play a crucial role in the portfolios of investors. Real estate analysts are forecasting for the entire industry, a fairly unexciting growth rate of 0.32% in the upcoming year , and a robust short-term growth of 21.36% over the next couple of years. However, this rate came in below the growth rate of the Hong Kong stock market as a whole. Today, I’ll take you through the real estate sector outlook, and also determine whether China Oceanwide Holdings is a laggard or leader relative to its real estate sector peers. View our latest analysis for China Oceanwide Holdings
What’s the catalyst for China Oceanwide Holdings’s sector growth?
Not every category of real estate is likely to be impacted the same by macroeconomic factors such as interest rate hikes, and not all locations are primed to grow. So, investors must remain cautiously optimistic and analyse the fundamentals of the underlying industry. Over the past year, the industry saw growth in the twenties, beating the Hong Kong market growth of 11.29%. China Oceanwide Holdings lags the pack with its negative growth rate of -81.65% over the past year, which indicates the company will be growing at a slower pace than its real estate peers. As the company trails the rest of the industry in terms of growth, China Oceanwide Holdings may also be a cheaper stock relative to its peers.
Is China Oceanwide Holdings and the sector relatively cheap?
The real estate industry is trading at a PE ratio of 7x, below the broader Hong Kong stock market PE of 14x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 10.60% on equities compared to the market’s 10.06%. On the stock-level, China Oceanwide Holdings is trading at a higher PE ratio of 287x, making it more expensive than the average real estate stock. In terms of returns, China Oceanwide Holdings generated 0.36% in the past year, which is 10% below the real estate sector.
What this means for you:
Are you a shareholder? China Oceanwide Holdings has been a real estate industry laggard in the past year. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis. This may indicate it is the right time to sell out of the stock, if your initial investment thesis is around the growth prospects of China Oceanwide Holdings, since there are other real estate companies that have delivered higher growth, and are possibly trading at a cheaper price as well.