In This Article:
China YuHua Education Corporation Limited (HKG:6169), a HK$13.26b small-cap, is a consumer services company operating in an industry, whose performance is linked to business conditions and the general economy, as it draws revenue from industries across different sectors. Consumer services analysts are forecasting for the entire industry, a positive double-digit growth of 29.8% in the upcoming year , and an enormous triple-digit earnings growth over the next couple of years. This rate is larger than the growth rate of the Hong Kong stock market as a whole. In this article, I’ll take you through the sector growth expectations, as well as evaluate whether China YuHua Education is lagging or leading in the industry.
View our latest analysis for China YuHua Education
What’s the catalyst for China YuHua Education’s sector growth?
E-commerce remains a later driver of growth for commercial services, which enables service companies to grow share and reduce cost to serve. In the previous year, the industry saw growth in the twenties, beating the Hong Kong market growth of 14.8%. China YuHua Education leads the pack with its impressive earnings growth of 38.8% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with China YuHua Education poised to deliver a 45.8% growth over the next couple of years compared to the industry’s 29.8%. This growth may make China YuHua Education a more expensive stock relative to its peers.
Is China YuHua Education and the sector relatively cheap?
The consumer services sector’s PE is currently hovering around 25.41x, higher than the rest of the Hong Kong stock market PE of 11.69x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry did return a higher 12.7% compared to the market’s 9.5%, which may be indicative of past tailwinds. On the stock-level, China YuHua Education is trading at a PE ratio of 28.17x, which is relatively in-line with the average consumer services stock. In terms of returns, China YuHua Education generated 11.5% in the past year, which is 1.2% below the consumer services sector.
Next Steps:
China YuHua Education’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If China YuHua Education has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at China YuHua Education’s fundamentals in order to build a holistic investment thesis.