When Should You Buy Dongfeng Motor Group Company Limited (HKG:489)?

By
Simply Wall St
Published
October 24, 2021
SEHK:489
Source: Shutterstock

Dongfeng Motor Group Company Limited (HKG:489), is not the largest company out there, but it received a lot of attention from a substantial price increase on the SEHK over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on Dongfeng Motor Group’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Dongfeng Motor Group

What's the opportunity in Dongfeng Motor Group?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 7.27% above my intrinsic value, which means if you buy Dongfeng Motor Group today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is HK$7.00, then there isn’t really any room for the share price grow beyond what it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Dongfeng Motor Group’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.

Can we expect growth from Dongfeng Motor Group?

earnings-and-revenue-growth
SEHK:489 Earnings and Revenue Growth October 25th 2021

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Dongfeng Motor Group, it is expected to deliver a negative earnings growth of -16%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? 489 seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 489 for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on 489 should the price fluctuate below its true value.

If you'd like to know more about Dongfeng Motor Group as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Dongfeng Motor Group has 1 warning sign and it would be unwise to ignore this.

If you are no longer interested in Dongfeng Motor Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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