Does Modern Dairy Still Have Room to Grow After its 76% Rally into 2025?

Figuring out what to do with China Modern Dairy Holdings is on a lot of investors’ minds right now. Maybe you’re looking at the recent numbers and wondering if you’ve missed your chance, or if the rally still has legs. Sure, the stock dipped by 1.6% in the last week and slipped 8.6% over the past month, but let’s not miss the forest for the trees. Year to date, the price is up a strong 41.1%, and if you zoom out over the past 12 months, it has surged an incredible 76.1%. This kind of long-term growth definitely gets attention, especially since the company’s fundamentals haven’t drastically shifted and there have been no major market upsets in the broader dairy sector.

One interesting thing that stands out is China Modern Dairy’s value score. It currently sits at 3. That means, out of six valuation checks we look at, the company passes the bar for being undervalued in half of them. While not a blowout, it is a sign there could still be hidden value here, even after such a remarkable run. With recent developments in agricultural innovation and shifting consumer preferences in China, market confidence seems to be growing, but is it justified by the numbers?

Let’s take a closer look at the core ways investors measure undervaluation, and see how China Modern Dairy stacks up. By the end, I’ll share a perspective that can give you an even deeper sense of where real value lies. This is something that’s often missed when just running through a checklist.

China Modern Dairy Holdings delivered 76.1% returns over the last year. See how this stacks up to the rest of the Food industry.

Approach 1: China Modern Dairy Holdings Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates the true value of a company by projecting its future cash flows and then discounting them back to what they are worth today. In the case of China Modern Dairy Holdings, the analysis uses a 2 Stage Free Cash Flow to Equity approach, providing a forward-looking view based on both analyst estimates and further projections.

Currently, the company’s most recent Free Cash Flow sits at a negative CN¥1.89 billion. However, analysts see a turnaround, forecasting that Free Cash Flow will grow rapidly in coming years and reach CN¥2.06 billion by 2027. By Simply Wall St’s estimates, it could rise to CN¥2.64 billion by 2035. These projections reflect expectations of steady operational improvement, even after a recent challenging period.

With these cash flows discounted back to today’s terms, the DCF model estimates an intrinsic value of HK$5.25 per share for China Modern Dairy Holdings. This implies a dramatic discount of 75.8% compared to the current share price, suggesting a significant gap between market price and long-term expectations under these projections.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for China Modern Dairy Holdings.

Our Discounted Cash Flow (DCF) analysis suggests China Modern Dairy Holdings is undervalued by 75.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: China Modern Dairy Holdings Price vs Sales

The Price-to-Sales (P/S) ratio is often utilized for valuing companies that may not be consistently profitable, like China Modern Dairy Holdings. This metric is especially relevant when earnings are volatile or negative, as it focuses on the company’s ability to generate revenue, sidestepping profit fluctuations and accounting irregularities. The “right” P/S ratio for a company can shift based on how fast its sales are expected to grow, as well as any significant risks that could affect its future performance. Higher growth justifies a higher P/S, while greater risks pull it down.

China Modern Dairy Holdings currently trades at a P/S ratio of 0.71x. This compares to a peer average of 0.59x and an industry average of 0.64x, putting the company at a slight premium to both benchmarks. However, these averages do not always tell the whole story since they ignore differences in growth prospects, margin strength, and the company’s size. That is where Simply Wall St’s “Fair Ratio” comes in. This proprietary measure blends those very factors to tailor a benchmark specifically for China Modern Dairy. For this company, the Fair Ratio is calculated at 0.76x.

Because the actual P/S ratio of 0.71x is very close to the Fair Ratio of 0.76x, the stock looks fairly valued on this metric. The market appears to be pricing in China Modern Dairy’s risks and growth opportunities reasonably well right now.

Result: ABOUT RIGHT

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your China Modern Dairy Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let’s introduce you to Narratives. A Narrative is simply your story behind a stock, linking your view of a company's potential, your fair value assumptions, and your estimates for future revenue, earnings, and margins. Narratives help you move beyond numbers to see how the bigger picture, your expectations, and new information work together to shape your investment thesis.

On Simply Wall St’s platform, Narratives are an easy tool available within the Community page. Millions of investors use them to build, share, and update their perspectives in real time. They make it simple to compare your fair value with the current price, letting you decide when to buy or sell with more confidence. Since Narratives update automatically when news or earnings releases come out, you always have an up-to-date view based on your latest perspective.

For example, some China Modern Dairy Holdings investors expect rapid sales recovery leading to higher fair values, while others see growth plateauing and set much lower targets. Whichever story fits your outlook, Narratives give you a smarter and more dynamic way to invest.

Do you think there's more to the story for China Modern Dairy Holdings? Create your own Narrative to let the Community know!

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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