How Sinopec (SEHK:386) Is Valued After Breakthrough Biodegradable Film Success in Xinjiang

China Petroleum & Chemical (SEHK:386) has shared positive pilot results for its PBST biodegradable mulch film in Xinjiang. The new material matched the cotton yields of traditional films and addressed persistent plastic pollution issues in agriculture.

See our latest analysis for China Petroleum & Chemical.

China Petroleum & Chemical’s strong pilot results in Xinjiang arrive on the heels of growing interest in green materials, and investors have clearly taken notice. The stock delivered an 11.5% share price return over the past month and boasts a total shareholder return of 15.5% over the past year, reinforcing solid long-term momentum.

If you see potential in innovative material science, it might be a great moment to broaden your search and discover fast growing stocks with high insider ownership

With shares riding a wave of recent gains and new technology breakthroughs making headlines, investors are now faced with a key question: is China Petroleum & Chemical still undervalued after this run, or has the market already priced in the next phase of growth?

Price-to-Earnings of 14.1x: Is it justified?

China Petroleum & Chemical trades at a price-to-earnings ratio of 14.1x, notably higher than peers. This positions the stock as more expensive than comparable companies in the sector at the last close of HK$4.57.

The price-to-earnings (P/E) ratio is a key measure of how much investors are willing to pay today for each dollar of current earnings. For energy companies like China Petroleum & Chemical, the P/E is often used to assess whether future growth prospects and quality of earnings are already reflected in the share price.

A P/E of 14.1x means the market is pricing the company well above the Hong Kong Oil and Gas industry average of 9.9x, as well as the peer average of 9.7x. This signals that investors are assigning a premium for potential growth or quality. However, it is above the level seen as “fair” based on regression analysis, which suggests a figure of 15.8x is justified by fundamentals. If the market corrects, it could move closer to this fair ratio over time.

Explore the SWS fair ratio for China Petroleum & Chemical

Result: Price-to-Earnings of 14.1x (OVERVALUED)

However, slowing revenue growth and the possibility of shifting commodity prices could quickly challenge current investor optimism.

Find out about the key risks to this China Petroleum & Chemical narrative.

Another View: Discounted Cash Flow Signals a Different Story

Looking at our DCF model, China Petroleum & Chemical appears considerably undervalued, trading at a 47.6% discount to our estimate of fair value. This suggests that market sentiment, as shown by traditional ratios, may be missing something. Could this gap point to an opportunity, or is there a reason for caution?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out China Petroleum & Chemical for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 897 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own China Petroleum & Chemical Narrative

If you see things differently or want to dig into the data firsthand, building your own take takes just a few minutes. Do it your way

A great starting point for your China Petroleum & Chemical research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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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.

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