Is Xinyi Glass Holdings Limited (HKG:868) Potentially Undervalued?

By
Simply Wall St
Published
April 21, 2022
SEHK:868
Source: Shutterstock

Xinyi Glass Holdings Limited (HKG:868), is not the largest company out there, but it received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$22.75 at one point, and dropping to the lows of HK$17.10. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Xinyi Glass Holdings' current trading price of HK$17.10 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Xinyi Glass Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Xinyi Glass Holdings

What is Xinyi Glass Holdings 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. 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 5.91x is currently trading slightly below its industry peers’ ratio of 7.39x, which means if you buy Xinyi Glass Holdings today, you’d be paying a decent price for it. And if you believe Xinyi Glass Holdings 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, it seems like Xinyi Glass Holdings’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Xinyi Glass Holdings?

earnings-and-revenue-growth
SEHK:868 Earnings and Revenue Growth April 21st 2022

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. Though in the case of Xinyi Glass Holdings, it is expected to deliver a negative earnings growth of -2.6%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Currently, 868 appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 868, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on 868 for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on 868 should the price fluctuate below the industry PE ratio.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've found that Xinyi Glass Holdings has 3 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Xinyi Glass Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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