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The real estate sector performs relatively in-line with the wider economy. Prosperous periods bring about high growth and inflation, leading to strong returns in real estate investments. Chen Xing Development Holdings and Midland Holdings are real estate stocks on my list that are potentially undervalued, which means their current share prices are trading well-below what the companies are actually worth. There’s a few ways you can value a cyclical company. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. Analysing the most recent financial data, I’ve created a list of companies that compare favourably in all criteria, making them potentially good investments.
Chen Xing Development Holdings Limited (SEHK:2286)
Chen Xing Development Holdings Limited, an investment holding company, engages in the development and sale of residential and commercial properties in Mainland China. Started in 1997, and currently headed by CEO Wukui Bai, the company currently employs 183 people and with the company’s market capitalisation at HKD HK$980.00M, we can put it in the small-cap group.
2286’s shares are now floating at around -93% below its real value of ¥29.48, at a price of HK$1.96, according to my discounted cash flow model. The difference between value and price signals a potential opportunity to buy 2286 shares at a discount. Furthermore, 2286’s PE ratio stands at around 4.67x relative to its Real Estate peer level of, 7.31x suggesting that relative to other stocks in the industry, you can buy 2286 for a cheaper price. 2286 is also robust in terms of financial health, with short-term assets covering liabilities in the near future as well as in the long run. Finally, its debt relative to equity is 40.26%, which has been falling for the last couple of years showing 2286’s capability to pay down its debt. Dig deeper into Chen Xing Development Holdings here.
Midland Holdings Limited (SEHK:1200)
Midland Holdings Limited, through its subsidiaries, provides property agency services in Hong Kong, the People’s Republic of China, and Macau. Established in 1973, and currently run by Tsz Wa Wong, the company currently employs 7,452 people and with the company’s market cap sitting at HKD HK$1.53B, it falls under the small-cap category.
1200’s shares are currently floating at around -60% less than its actual worth of $5.28, at a price tag of HK$2.13, according to my discounted cash flow model. This price and value mismatch indicates a potential opportunity to buy the stock at a low price. Also, 1200’s PE ratio is currently around 7.91x while its index peer level trades at, 13.43x meaning that relative to its comparable company group, we can invest in 1200 at a lower price. 1200 is also strong in terms of its financial health, with near-term assets able to cover upcoming and long-term liabilities.