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Shui On Land Limited (HKG:272), which is in the real estate business, and is based in China, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$2.04 at one point, and dropping to the lows of HK$1.73. 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 Shui On Land's current trading price of HK$1.78 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 Shui On Land’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 Shui On Land
What is Shui On Land worth?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 6.62x is currently trading slightly above its industry peers’ ratio of 6.27x, which means if you buy Shui On Land today, you’d be paying a relatively reasonable price for it. And if you believe Shui On Land 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 Shui On Land’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 does the future of Shui On Land look like?
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 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 Shui On Land, at least in the near future.
What this means for you:
Are you a shareholder? Currently, 272 appears to be trading around its fair value, 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 272, take a look at whether its fundamentals have changed.