Greentown China Holdings Limited (SEHK:3900), a real estate company based in China, received a lot of attention from a substantial price movement on the SEHK in the over the last few months, increasing to HK$10.94 at one point, and dropping to the lows of HK$8.44. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Greentown China Holdings’s current trading price of HK$9.06 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Greentown China Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. Check out our latest analysis for Greentown China Holdings
What is Greentown China Holdings worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-equity (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Greentown China Holdings’s ratio of 7.9x is trading slightly above its industry peers’ ratio of 6.6x, which means if you buy Greentown China Holdings today, you’d be paying a relatively reasonable price for it. And if you believe Greentown China Holdings should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Greentown China Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What kind of growth will Greentown China Holdings generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a relatively muted profit growth of 6.82% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Greentown China Holdings, at least in the short term.
What this means for you:
Are you a shareholder? Greentown China Holdings’s future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at Greentown China Holdings? Will you have enough confidence to invest in the company should the price drop below its fair value?