The risk of investing in the stock market is a systematic crash. This is when all the stock prices start falling around the same time. But this risk is also an opportunity for those that understand the fickle nature of the market. High quality, proven companies tend to stick around in the long run, although their share price may be temporarily impacted by a crash. This is the best time to buy stocks like China Oriental Group Company Limited at a discount.
China Oriental Group Company Limited, an investment holding company, manufactures and sells iron and steel products for downstream steel manufacturers in the People’s Republic of China. Started in 2003, and run by CEO Jingyuan Han, the company provides employment to 9.60k people and has a market cap of HK$20b, putting it in the mid-cap group. Typically, large companies are well-established and highly resourced, meaning that stock market volatility may impact some short-term strategic decisions but unlikely to matter in the long run. Therefore, large-cap stocks are a safe bet to buy more of when the general market is selling off.
With CN¥1.9b debt on its books, China Oriental Group has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. China Oriental Group generates enough earnings to cover its interest payments, however its interest expenses are already well-covered by its interest income. Moreover, its cash flows from operations copiously covers it debt by over 2x, much higher than the safe minimum of 0.2x. And, a given, its liquidity ratio holds up well with cash and other liquid assets exceeding upcoming liabilities, meaning 581’s financial strength will continue to let it thrive in a fickle market.
581’s profit growth over the previous five years has been positive, with an average annual rate of 78%, outperfoming the industry growth rate of 20%. It has also returned an ROE of 36% recently, above the industry return of 11%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in China Oriental Group as an investment over the long run.
Next Steps:China Oriental Group makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with China Oriental Group? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:
- Future Outlook: What are well-informed industry analysts predicting for 581’s future growth? Take a look at our free research report of analyst consensus for 581’s outlook.
- Valuation: What is 581 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 581 is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.