At HK$15.69, Is MGM China Holdings Limited (HKG:2282) Worth Looking At Closely?

MGM China Holdings Limited (HKG:2282), 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. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s take a look at MGM China Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.

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Is MGM China Holdings Still Cheap?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that MGM China Holdings’s ratio of 13.87x is trading slightly below its industry peers’ ratio of 16.32x, which means if you buy MGM China Holdings today, you’d be paying a reasonable price for it. And if you believe MGM China 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. Although, there may be an opportunity to buy in the future. This is because MGM China Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

See our latest analysis for MGM China Holdings

What does the future of MGM China Holdings look like?

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. With profit expected to grow by 39% over the next couple of years, the future seems bright for MGM China Holdings. 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? 2282’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 track record of its management team. Have these factors changed since the last time you looked at 2282? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on 2282, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 2282, 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.

So while earnings quality is important, it's equally important to consider the risks facing MGM China Holdings at this point in time. You'd be interested to know, that we found 2 warning signs for MGM China Holdings and you'll want to know about these.

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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.