COSCO SHIPPING Ports Limited (HKG:1199), is not the largest company out there, but it saw a decent share price growth in the teens level on the SEHK over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s take a look at COSCO SHIPPING Ports’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Is COSCO SHIPPING Ports still cheap?
According to my price multiple model, which makes a comparison between the company’s price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 4.91x is currently trading slightly below its industry peers’ ratio of 8.36x, which means if you buy COSCO SHIPPING Ports today, you’d be paying a reasonable price for it. And if you believe COSCO SHIPPING Ports should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like COSCO SHIPPING Ports’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
What does the future of COSCO SHIPPING Ports 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. 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. Though in the case of COSCO SHIPPING Ports, it is expected to deliver a negative earnings growth of -11%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, 1199 appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 1199, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on 1199 for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on 1199 should the price fluctuate below the industry PE ratio.
Keep in mind, when it comes to analysing a stock it’s worth noting the risks involved. To that end, you should learn about the 3 warning signs we’ve spotted with COSCO SHIPPING Ports (including 1 which can’t be ignored).
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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.
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