Want To Invest In Geely Automobile Holdings Limited (HKG:175) Today? Read This First

Geely Automobile Holdings Limited (HKG:175) closed yesterday at HK$11.52, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s look into this by assessing 175's expected growth over the next few years.

Check out our latest analysis for Geely Automobile Holdings

Exciting times ahead?

Geely Automobile Holdings is poised for extremely high earnings growth in the near future. The consensus forecast from 31 analysts is extremely bullish with earnings forecasted to rise significantly from today's level of CN¥1.445 to CN¥2.1 over the next three years. This indicates an estimated earnings growth rate of 18% per year, on average, which illustrates a highly optimistic outlook in the near term.

Is 175's share price justifiable by its earnings growth?

Geely Automobile Holdings is available at a price-to-earnings ratio of 6.99x, showing us it is undervalued relative to the current HK market average of 10.22x , and undervalued based on its latest annual earnings update compared to the Auto average of 7.2x .

Geely Automobile Holdings's price-to-earnings ratio stands at 6.99x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. But, to properly examine the value of a high-growth stock such as Geely Automobile Holdings, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 6.99x and expected year-on-year earnings growth of 18% give Geely Automobile Holdings an extremely low PEG ratio of 0.38x. This tells us that when we include its growth in our analysis Geely Automobile Holdings's stock can be considered relatively cheap , based on its fundamentals.

What this means for you:

175'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 highly recommend you to complete your research by taking a look at the following:

1. Financial Health: Are 175’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 175 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 175'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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.