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SOHO China Limited (HKG:410), which is in the real estate business, and is based in China, saw significant share price movement during recent months on the SEHK, rising to highs of HK$3.3 and falling to the lows of HK$2.45. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether SOHO China's current trading price of HK$2.49 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at SOHO China’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for SOHO China
What is SOHO China worth?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 5.94x is currently trading slightly below its industry peers’ ratio of 6.29x, which means if you buy SOHO China today, you’d be paying a fair price for it. And if you believe that SOHO China should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that SOHO China’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of SOHO China look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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 SOHO China, at least in the near future.
What this means for you:
Are you a shareholder? 410 seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in 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 410, take a look at whether its fundamentals have changed.