At HK$7.94, Is It Time To Put Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564) On Your Watch List?

Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564), 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 HK$24b market-cap stock, it seems odd Zhengzhou Coal Mining Machinery Group is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Zhengzhou Coal Mining Machinery Group’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Zhengzhou Coal Mining Machinery Group

What is Zhengzhou Coal Mining Machinery 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 Zhengzhou Coal Mining Machinery Group’s ratio of 5.83x is trading slightly below its industry peers’ ratio of 10.18x, which means if you buy Zhengzhou Coal Mining Machinery Group today, you’d be paying a reasonable price for it. And if you believe Zhengzhou Coal Mining Machinery Group should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, Zhengzhou Coal Mining Machinery Group’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What kind of growth will Zhengzhou Coal Mining Machinery Group generate?

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. With profit expected to grow by 24% over the next year, the near-term future seems bright for Zhengzhou Coal Mining Machinery 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? 564’s optimistic future growth appears to have been factored into the current share price, 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 564? 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 tabs on 564, 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 564, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. At Simply Wall St, we found 2 warning signs for Zhengzhou Coal Mining Machinery Group and we think they deserve your attention.

If you are no longer interested in Zhengzhou Coal Mining Machinery 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.