Let's talk about the popular China Communications Construction Company Limited (HKG:1800). The company's shares received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$6.26 at one point, and dropping to the lows of HK$4.62. 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 China Communications Construction's current trading price of HK$4.62 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at China Communications Construction’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is China Communications Construction still cheap?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 4.09x is currently trading slightly below its industry peers’ ratio of 7.35x, which means if you buy China Communications Construction today, you’d be paying a reasonable price for it. And if you believe that China Communications Construction should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, China Communications Construction’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What does the future of China Communications Construction look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. China Communications Construction’s earnings over the next few years are expected to increase by 34%, indicating a highly optimistic future ahead. This should lead to more robust 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 1800’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at 1800? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on 1800, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 1800, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on China Communications Construction. You can find everything you need to know about China Communications Construction in the latest infographic research report. If you are no longer interested in China Communications Construction, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.