Is Now An Opportune Moment To Examine Geely Automobile Holdings Limited (HKG:175)?

Today we're going to take a look at the well-established Geely Automobile Holdings Limited (HKG:175). The company's stock received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$10.08 at one point, and dropping to the lows of HK$8.22. 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 Geely Automobile Holdings' current trading price of HK$8.22 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 Geely Automobile Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Geely Automobile Holdings

Is Geely Automobile Holdings 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 14.71x is currently trading in-line with its industry peers’ ratio, which means if you buy Geely Automobile Holdings today, you’d be paying a relatively reasonable price for it. Although, there may be an opportunity to buy in the future. This is because Geely Automobile Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Geely Automobile Holdings generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Geely Automobile Holdings' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? 175’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at 175? 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 tabs on 175, 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 175, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Geely Automobile Holdings at this point in time. In terms of investment risks, we've identified 1 warning sign with Geely Automobile Holdings, and understanding it should be part of your investment process.

If you are no longer interested in Geely Automobile Holdings, you can use our free platform to see our 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.