At HK$9.05, Is It Time To Put Dongyue Group Limited (HKG:189) On Your Watch List?

Dongyue Group Limited (HKG:189), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. 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. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Dongyue Group’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Dongyue Group

Is Dongyue Group Still Cheap?

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. 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 5.62x is currently trading slightly above its industry peers’ ratio of 5.4x, which means if you buy Dongyue Group today, you’d be paying a relatively sensible price for it. And if you believe Dongyue Group should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Dongyue Group’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Dongyue Group look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Dongyue Group, it is expected to deliver a negative earnings growth of -4.1%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? 189 seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 189, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on 189 for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on 189 should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Dongyue Group at this point in time. Our analysis shows 3 warning signs for Dongyue Group (2 are a bit unpleasant!) and we strongly recommend you look at them before investing.

If you are no longer interested in Dongyue Group, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.