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Guangzhou R&F Properties Co., Ltd. (HKG:2777), which is in the real estate business, and is based in China, received a lot of attention from a substantial price increase on the SEHK over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Guangzhou R&F Properties’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
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What is Guangzhou R&F Properties worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Guangzhou R&F Properties’s ratio of 1.74x is trading slightly below its industry peers’ ratio of 5.45x, which means if you buy Guangzhou R&F Properties today, you’d be paying a fair price for it. And if you believe that Guangzhou R&F Properties should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Guangzhou R&F Properties’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Guangzhou R&F Properties generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Guangzhou R&F Properties, at least in the near future.
What this means for you:
Are you a shareholder? 2777 seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 2777, take a look at whether its fundamentals have changed.