Is There Now An Opportunity In SINOPEC Engineering (Group) Co., Ltd. (HKG:2386)?

SINOPEC Engineering (Group) Co., Ltd. (HKG:2386), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the SEHK. 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? Let’s take a look at SINOPEC Engineering (Group)’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for SINOPEC Engineering (Group)

What is SINOPEC Engineering (Group) worth?

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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that SINOPEC Engineering (Group)’s ratio of 6.5x is trading slightly below its industry peers’ ratio of 8.75x, which means if you buy SINOPEC Engineering (Group) today, you’d be paying a reasonable price for it. And if you believe that SINOPEC Engineering (Group) should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. So, is there another chance to buy low in the future? Given that SINOPEC Engineering (Group)’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from SINOPEC Engineering (Group)?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. With profit expected to grow by a double-digit 17% over the next couple of years, the outlook is positive for SINOPEC Engineering (Group). It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has already priced in 2386’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at 2386? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on 2386, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for 2386, 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.

If you'd like to know more about SINOPEC Engineering (Group) as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 1 warning sign for SINOPEC Engineering (Group) you should know about.

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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. 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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