In This Article:
Canvest Environmental Protection Group Company Limited (HKG:1381), a HK$10.2b small-cap, operates in the utilities industry which has continued to cope with the rising costs and complexities of maintaining legacy systems, while less traditional challenges are emerging. Utilities analysts are forecasting for the entire industry, an extremely elevated growth of 32% in the upcoming year , and a massive triple-digit earnings growth over the next couple of years. Not surprisingly, this rate is more than double the growth rate of the Hong Kong stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Canvest Environmental Protection Group is lagging or leading its competitors in the industry.
View our latest analysis for Canvest Environmental Protection Group
What’s the catalyst for Canvest Environmental Protection Group’s sector growth?
Moving forward, key issues facing utility companies include climate change and environmental concerns, and new entrants and disruptive technology. In the past year, the industry delivered growth in the teens, though still underperforming the wider Hong Kong stock market. Canvest Environmental Protection Group leads the pack with its impressive earnings growth of 39% over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be 19% compared to the wider utilities sector growth hovering in the thirties next year. As a future industry laggard in growth, Canvest Environmental Protection Group may be a cheaper stock relative to its peers.
Is Canvest Environmental Protection Group and the sector relatively cheap?
The utilities industry is trading at a PE ratio of 11.07x, relatively similar to the rest of the Hong Kong stock market PE of 11.52x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 6.6% compared to the market’s 9.5%, potentially indicative of past headwinds. On the stock-level, Canvest Environmental Protection Group is trading at a PE ratio of 15.57x, which is relatively in-line with the average utilities stock. In terms of returns, Canvest Environmental Protection Group generated 13% in the past year, which is 6.3% over the utilities sector.
Next Steps:
If Canvest Environmental Protection Group has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is an utilities industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the utilities sector. However, before you make a decision on the stock, I suggest you look at Canvest Environmental Protection Group’s fundamentals in order to build a holistic investment thesis.