Should You Think About Buying SINOPEC Engineering (Group) Co., Ltd. (HKG:2386) Now?

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. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine SINOPEC Engineering (Group)’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for SINOPEC Engineering (Group)

What is SINOPEC Engineering (Group) worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 7.2x is trading slightly below its industry peers’ ratio of 9.52x, 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. Is there another opportunity to buy low in the future? Since SINOPEC Engineering (Group)’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of SINOPEC Engineering (Group) look like?

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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. SINOPEC Engineering (Group)'s earnings over the next few years are expected to increase by 33%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

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 financial strength of the company. Have these factors changed since the last time you looked at 2386? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on 2386, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook 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.

So while earnings quality is important, it's equally important to consider the risks facing SINOPEC Engineering (Group) at this point in time. You'd be interested to know, that we found 1 warning sign for SINOPEC Engineering (Group) and you'll want to know about it.

If you are no longer interested in SINOPEC Engineering (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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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.