In This Article:
Binhai Investment Company Limited (HKG:2886), which is in the gas utilities business, and is based in Hong Kong, saw a decent share price growth in the teens level on the SEHK over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyse the most recent data on Binhai Investment’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for Binhai Investment
What is Binhai Investment 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 15.35x is currently trading slightly below its industry peers’ ratio of 16.89x, which means if you buy Binhai Investment today, you’d be paying a reasonable price for it. And if you believe Binhai Investment should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. In addition to this, it seems like Binhai Investment’s share price is quite stable, which could mean 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.
Can we expect growth from Binhai Investment?
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. In Binhai Investment’s case, its revenues over the next few years are expected to grow by 48%, indicating a highly optimistic future ahead. If expense does not increase by the same rate, or higher, this top line growth should lead to stronger cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in 2886’s positive 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 2886? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping an eye on 2886, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for 2886, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.