At HK$9.90, Is Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564) Worth Looking At Closely?

Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the SEHK over the last few months. As a HK$22b 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.

See our latest analysis for Zhengzhou Coal Mining Machinery Group

What's the opportunity in Zhengzhou Coal Mining Machinery Group?

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. 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 11.98x is currently trading slightly below its industry peers’ ratio of 12.4x, which means if you buy Zhengzhou Coal Mining Machinery Group today, you’d be paying a decent price for it. And if you believe that Zhengzhou Coal Mining Machinery 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. In addition to this, it seems like Zhengzhou Coal Mining Machinery Group’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Zhengzhou Coal Mining Machinery Group?

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 38% 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? It seems like the market has already priced in 564’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 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 an eye 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 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 Zhengzhou Coal Mining Machinery Group as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 3 warning signs for Zhengzhou Coal Mining Machinery Group and you'll want to know about these.

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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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