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Hebei Construction Group Corporation Limited (HKG:1727) closed yesterday at HK$5.86, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s look into this by assessing 1727’s expected growth over the next few years.
Should you get excited about 1727’s future?
Hebei Construction Group is poised for extremely high earnings growth in the near future. Analyst expectations are extremely positive with earnings forecasted to rise significantly from today’s level of CN¥0.632 to CN¥1.02 over the next three years. On average, this leads to a growth rate of 16% each year, which signals a market-beating outlook in the upcoming years.
Is 1727’s share price justifiable by its earnings growth?
Stocks like Hebei Construction Group, with a price-to-earnings (P/E) ratio of 8.16x, 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 1727 is undervalued relative to the current HK market average of 10.71x , and undervalued based on its latest annual earnings update compared to the Construction average of 9.77x .
We already know that 1727 appears to be undervalued based on its PE ratio, compared to the industry average. But, seeing as Hebei Construction Group is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 8.16x and expected year-on-year earnings growth of 16% give Hebei Construction Group an extremely low PEG ratio of 0.50x. This tells us that when we include its growth in our analysis Hebei Construction Group’s stock can be considered relatively cheap , based on fundamental analysis.
What this means for you:
1727’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:
- Financial Health: Are 1727’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.
- Valuation: What is 1727 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 1727 is currently mispriced by the market.
- 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 firstname.lastname@example.org. 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.