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Sichuan Expressway Company Limited (HKG:107), which is in the infrastructure 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$2.5 at one point, and dropping to the lows of HK$2.18. 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 Sichuan Expressway's current trading price of HK$2.21 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 Sichuan Expressway’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
View our latest analysis for Sichuan Expressway
Is Sichuan Expressway still cheap?
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 Sichuan Expressway’s ratio of 6.89x is trading slightly below its industry peers’ ratio of 8.23x, which means if you buy Sichuan Expressway today, you’d be paying a reasonable price for it. And if you believe Sichuan Expressway should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Furthermore, it seems like Sichuan Expressway’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Sichuan Expressway 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. Though in the case of Sichuan Expressway, it is expected to deliver a relatively unexciting top-line growth of 3.3% in the next few years, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in 107’s growth outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at 107? Will you have enough confidence to invest in the company should the price drop below its fair value?