Is There Now An Opportunity In China YuHua Education Corporation Limited (HKG:6169)?

China YuHua Education Corporation Limited (HKG:6169), 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. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine China YuHua Education’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for China YuHua Education

What is China YuHua Education 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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that China YuHua Education’s ratio of 19.05x is trading slightly below its industry peers’ ratio of 22x, which means if you buy China YuHua Education today, you’d be paying a reasonable price for it. And if you believe that China YuHua Education 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. Furthermore, China YuHua Education’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect growth from China YuHua Education?

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. China YuHua Education's earnings over the next few years are expected to increase by 54%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? 6169’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 financial strength of the company. Have these factors changed since the last time you looked at 6169? 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 tabs on 6169, 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 6169, 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 China YuHua Education as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 2 warning signs for China YuHua Education you should know about.

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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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