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

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Brilliance China Automotive Holdings Limited (HKG:1114) is considered a high-growth stock, but its last closing price of HK$8.72 left some investors wondering if this high future earnings potential can be rationalized by its current price tag. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

View our latest analysis for Brilliance China Automotive Holdings

Has the 1114 train has slowed down?

According to the analysts covering the company, the following few years should bring about good growth prospects for Brilliance China Automotive Holdings. Expectations from 24 analysts are certainly positive with earnings per share estimated to rise from today’s level of CN¥1.154 to CN¥1.645 over the next three years. On average, this leads to a growth rate of 12% each year, which signals a market-beating outlook in the upcoming years.

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

Stocks like Brilliance China Automotive Holdings, with a price-to-earnings (P/E) ratio of 6.66x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that 1114 is undervalued relative to the current HK market average of 10.8x , and undervalued based on its latest annual earnings update compared to the Auto average of 8.97x .

SEHK:1114 Price Estimation Relative to Market, June 25th 2019
SEHK:1114 Price Estimation Relative to Market, June 25th 2019

We already know that 1114 appears to be undervalued based on its PE ratio, compared to the industry average. 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 6.66x and expected year-on-year earnings growth of 12% give Brilliance China Automotive Holdings a very low PEG ratio of 0.55x. So, when we include the growth factor in our analysis, Brilliance China Automotive Holdings appears relatively cheap , based on fundamental analysis.

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.