Guorui Properties Limited (SEHK:2329), a HKDHK$10.13B small-cap, operates in the real estate industry which displays attractive investment characteristics relative to other sectors, especially over time. Real estate analysts are forecasting for the entire industry, a fairly unexciting growth rate of 0.32% in the upcoming year , and an optimistic near-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, as well as evaluate whether Guorui Properties is lagging or leading in the industry. Check out our latest analysis for Guorui Properties
What’s the catalyst for Guorui Properties’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. In the past year, the industry delivered growth in the twenties, beating the Hong Kong market growth of 11.30%. Guorui Properties lags the pack with its negative growth rate of -11.64% 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, Guorui Properties may also be a cheaper stock relative to its peers.
Is Guorui Properties and the sector relatively cheap?
Real estate companies are typically trading at a PE of 7x, below the broader Hong Kong stock market PE of 14x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 10.60% on equities compared to the market’s 10.00%. On the stock-level, Guorui Properties is trading at a PE ratio of 7x, which is relatively in-line with the average real estate stock. In terms of returns, Guorui Properties generated 14.01% in the past year, which is 3.41% over the real estate sector.
What this means for you:
Are you a shareholder? Guorui Properties has been a real estate industry laggard in the past year. If your initial investment thesis is around the growth prospects of Guorui Properties, there are other real estate companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Guorui Properties fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Guorui Properties has been on your watchlist for a while, now may be the best time to enter into the stock. It delivered lower earnings growth compared to its real estate peers in the near term, and it is also trading at a PE in-line with these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector.