Consider These Factors, Then Buy Haier Electronics Group Co., Ltd. (HKG:1169)

When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as Haier Electronics Group Co., Ltd. has fared well over time in a fickle stock market, which is why I want to bring it into light amongst all the chaos. Below I take a look at three key features of what makes a robust defensive stock investment: its size, financial health and track record.

View our latest analysis for Haier Electronics Group

Haier Electronics Group Co., Ltd., an investment holding company, engages in the research, development, production, and sale of washing machines and water heaters under the brand name of Haier, Casarte, and Leader in the People’s Republic of China. Established in 1984, and headed by CEO Hua Gang Li, the company provides employment to 16.54k people and with the company’s market cap sitting at HK$61b, it falls under the mid-cap stocks category. Volatility in the market is hardly detrimental to the financial health and business operations of a large, well-established company. Although some monetary and fiscal policy changes may impact some corporate financing decisions and strategy, what we’ve learnt over time is that these companies tend to adapt. And having a strong balance sheet and a history of proven success aids in this adaptability.

SEHK:1169 Historical Debt January 28th 19
SEHK:1169 Historical Debt January 28th 19

Haier Electronics Group currently has CN¥90m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. With interest income higher than interest payments, meeting these short-term debt obligations isn’t a problem for Haier Electronics Group. Moreover, its cash flows from operations copiously covers it debt by more than 2x, which is higher than the bare minimum requirement of 0.2x. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning 1169’s financial strength will continue to let it thrive in a fickle market.

SEHK:1169 Income Statement Export January 28th 19
SEHK:1169 Income Statement Export January 28th 19

1169’s profit growth over the previous five years has been positive, with an average annual rate of 12%, beating the market growth rate of 10.0%. It has also returned an ROE of 16% recently, above the industry return of 12%. Haier Electronics Group’s strong performance over time is a demonstration of its ability to grow through cycles, raising my confidence in the company as a long-term investment.

Next Steps:

Based on these three factors, 1169 makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy 1169, I highly urge you to understand more about the company, in particular, in these following areas:
  1. Future Outlook: What are well-informed industry analysts predicting for 1169’s future growth? Take a look at our free research report of analyst consensus for 1169’s outlook.
  2. Valuation: What is 1169 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 1169 is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.