Should You Investigate Sinotruk (Hong Kong) Limited (HKG:3808) At HK$12.60?

Sinotruk (Hong Kong) Limited (HKG:3808), might not be a large cap stock, but it led the SEHK gainers with a relatively large price hike in the past couple of weeks. 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, could the stock still be trading at a relatively cheap price? Let’s examine Sinotruk (Hong Kong)’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Sinotruk (Hong Kong)

What is Sinotruk (Hong Kong) worth?

Good news, investors! Sinotruk (Hong Kong) is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 3.77x is currently well-below the industry average of 10.78x, meaning that it is trading at a cheaper price relative to its peers. Sinotruk (Hong Kong)’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What does the future of Sinotruk (Hong Kong) look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Sinotruk (Hong Kong), at least in the near future.

What this means for you:

Are you a shareholder? Although 3808 is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to 3808, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on 3808 for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you want to dive deeper into Sinotruk (Hong Kong), you'd also look into what risks it is currently facing. For instance, we've identified 3 warning signs for Sinotruk (Hong Kong) (2 are a bit concerning) you should be familiar with.

If you are no longer interested in Sinotruk (Hong Kong), 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.