Is China Resources Power Holdings Company Limited’s (HKG:836) Growth Strong Enough To Justify Its August Share Price?

China Resources Power Holdings Company Limited (HKG:836) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of HK$10.28 is based on unrealistic expectations. Let’s look into this by assessing 836’s expected growth over the next few years.

View our latest analysis for China Resources Power Holdings

Has the 836 train slowed down?

China Resources Power Holdings is poised for significantly high earnings growth in the near future. Expectations from 13 analysts are extremely bullish with earnings per share estimated to surge from current levels of HK$1.044 to HK$2.003 over the next three years. This indicates an estimated earnings growth rate of 17% per year, on average, which indicates an exceedlingly positive future in the near term.

Can 836’s share price be justified by its earnings growth?

China Resources Power Holdings is trading at quite low price-to-earnings (PE) ratio of 9.84x. This tells us the stock is overvalued compared to the HK market average ratio of 9.84x , and overvalued based on current earnings compared to the Renewable Energy industry average of 8.55x .

SEHK:836 Price Estimation Relative to Market, August 27th 2019
SEHK:836 Price Estimation Relative to Market, August 27th 2019

We already know that 836 appears to be overvalued when compared to its industry average. However, since China Resources Power Holdings is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 9.84x and expected year-on-year earnings growth of 17% give China Resources Power Holdings a very low PEG ratio of 0.57x. This means that, when we account for China Resources Power Holdings’s growth, the stock can be viewed as relatively cheap , based on the fundamentals.

What this means for you:

836’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Are 836’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has 836 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 836’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.