Guangzhou Automobile Group (SEHK:2238): Assessing Valuation as Shares Gain Momentum

Reviewed by Kshitija Bhandaru
Guangzhou Automobile Group (SEHK:2238) shares have caught the eye of investors recently, especially after their one-year total return reached 6% and quarterly returns jumped 13%. Let’s take a closer look at what is driving this performance.
See our latest analysis for Guangzhou Automobile Group.
The recent climb in Guangzhou Automobile Group's share price, capped by a strong 13% rise over the past quarter, signals growing optimism about its near-term prospects. Even though its one-year total shareholder return sits at 6%, longer-term returns remain subdued. However, current momentum suggests sentiment may be shifting in its favor.
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With shares up recently but long-term returns lagging, the real question is whether Guangzhou Automobile Group is trading at an attractive valuation now, or if investors have already priced in expectations for a strong rebound ahead.
Price-To-Sales of 0.3x: Is it justified?
Guangzhou Automobile Group is currently trading at a price-to-sales (P/S) ratio of just 0.3x, notably below both peers and the industry. At the last close price of HK$3.37, this suggests that the market is not attributing much future growth or profitability to the company when compared to similar stocks.
The price-to-sales ratio compares a company’s market capitalization to its total revenue. For auto makers like Guangzhou Automobile Group, it is a widely used metric because earnings can fluctuate significantly from year to year, making sales a steadier baseline for comparison.
Trading at a P/S multiple far beneath the peer average of 4.8x and the Asian industry average of 1.1x signals a pronounced discount. This may imply investors remain cautious, possibly due to lack of recent profitability or slower revenue growth. Relative to an estimated fair ratio of 0.5x, the current valuation is still attractive and could leave room for upside if sales stabilize or profitability returns.
Explore the SWS fair ratio for Guangzhou Automobile Group
Result: Price-to-Sales of 0.3x (UNDERVALUED)
However, persistent losses and only modest revenue growth could continue to weigh on investor sentiment, especially if competition in the sector intensifies further.
Find out about the key risks to this Guangzhou Automobile Group narrative.
Another View: What Does the SWS DCF Model Say?
While the low price-to-sales ratio makes Guangzhou Automobile Group appear undervalued, our DCF model offers a very different perspective. According to the SWS DCF model, the current share price of HK$3.37 is actually above its estimated fair value of HK$0.41. This suggests the stock may be overvalued on this measure. This raises the question: which viewpoint provides a more realistic picture for investors?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Guangzhou Automobile Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Build Your Own Guangzhou Automobile Group Narrative
If you see things differently or want a hands-on look at the numbers, you can quickly shape your own perspective in just a few minutes. Do it your way
A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding Guangzhou Automobile Group.
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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.
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About SEHK:2238
Guangzhou Automobile Group
Research, develops, manufactures, and sells vehicles and motorcycles, and parts and components in Mainland China and internationally.
Fair value with moderate growth potential.
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