Zall Group Ltd (SEHK:2098), a HKDHK$98.61B large-cap, operates in the real estate industry which is the most prevalent industry globally, and has continued to play a crucial role in the portfolios of investors. Real estate analysts are forecasting for the entire industry, a fairly unexciting growth rate of 0.32% in the upcoming year , and a robust short-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. Below, I will examine the sector growth prospects, as well as evaluate whether Zall Group is lagging or leading in the industry. View our latest analysis for Zall Group
What’s the catalyst for Zall Group’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%. Zall Group lags the pack with its negative growth rate of -29.18% 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, Zall Group may also be a cheaper stock relative to its peers.
Is Zall Group and the sector relatively cheap?
The real estate sector’s PE is currently hovering around 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, Zall Group is trading at a higher PE ratio of 46x, making it more expensive than the average real estate stock. In terms of returns, Zall Group generated 11.26% in the past year, in-line with its industry average.
What this means for you:
Are you a shareholder? Zall Group has been a real estate industry laggard in the past year. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis. This may indicate it is the right time to sell out of the stock, if your initial investment thesis is around the growth prospects of Zall Group, since there are other real estate companies that have delivered higher growth, and are possibly trading at a cheaper price as well.
Are you a potential investor? If Zall Group has been on your watchlist for a while, now may be the best time to enter into the stock. Its lagging growth rate compared to its real estate peers in the near term doesn’t build up its investment thesis, and in addition to this, it is also trading at a PE above these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector.