At HK$2.18, Is It Time To Put Hope Education Group Co., Ltd. (HKG:1765) On Your Watch List?

While Hope Education Group Co., Ltd. (HKG:1765) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the SEHK, rising to highs of HK$3.10 and falling to the lows of HK$2.18. 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 Hope Education Group's current trading price of HK$2.18 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 Hope Education Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Hope Education Group

Is Hope Education Group still cheap?

Hope Education Group appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and 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 39.1x is currently well-above the industry average of 20.16x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Hope Education Group’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

Can we expect growth from Hope Education Group?

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. 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. Hope Education Group's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in 1765’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe 1765 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on 1765 for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for 1765, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Hope Education Group at this point in time. For example, we've found that Hope Education Group has 5 warning signs (1 shouldn't be ignored!) that deserve your attention before going any further with your analysis.

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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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