Is Brilliance China Automotive Holdings Limited (HKG:1114) Undervalued After Accounting For Its Future Growth?

Brilliance China Automotive Holdings Limited (HKG:1114) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of HK$7.42 is based on unrealistic expectations. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

Check out our latest analysis for Brilliance China Automotive Holdings

What can we expect from Brilliance China Automotive Holdings in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for Brilliance China Automotive Holdings. Expectations from 28 analysts are certainly positive with earnings per share estimated to rise from today’s level of CN¥1.116 to CN¥1.689 over the next three years. This results in an annual growth rate of 11%, on average, which indicates a solid future in the near term.

Can 1114’s share price be justified by its earnings growth?

Brilliance China Automotive Holdings is available at a price-to-earnings ratio of 5.68x, showing us it is undervalued relative to the current HK market average of 10.96x , and undervalued based on its latest annual earnings update compared to the Auto average of 9.08x .

SEHK:1114 Price Estimation Relative to Market, March 27th 2019
SEHK:1114 Price Estimation Relative to Market, March 27th 2019

Brilliance China Automotive Holdings’s price-to-earnings ratio stands at 5.68x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, to be able to properly assess the value of a high-growth stock such as Brilliance China Automotive Holdings, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 5.68x and expected year-on-year earnings growth of 11% give Brilliance China Automotive Holdings a very low PEG ratio of 0.54x. This means that, when we account for Brilliance China Automotive Holdings’s growth, the stock can be viewed as relatively cheap , based on its fundamentals.

What this means for you:

1114’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 1114’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 1114 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 1114’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.