Is It Time To Consider Buying Asia Cement (China) Holdings Corporation (HKG:743)?

Asia Cement (China) Holdings Corporation (HKG:743), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$5.31 at one point, and dropping to the lows of HK$4.30. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Asia Cement (China) Holdings' current trading price of HK$4.30 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Asia Cement (China) Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Asia Cement (China) Holdings

What is Asia Cement (China) Holdings 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 Asia Cement (China) Holdings’s ratio of 4.04x is trading slightly below its industry peers’ ratio of 5.04x, which means if you buy Asia Cement (China) Holdings today, you’d be paying a decent price for it. And if you believe that Asia Cement (China) Holdings 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. In addition to this, it seems like Asia Cement (China) Holdings’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Asia Cement (China) Holdings?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with an expected decline of -4.7% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Asia Cement (China) Holdings. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, 743 appears to be trading around industry price multiples, 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 743, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 743 for a while, now may not be the most optimal 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 743 should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Asia Cement (China) Holdings at this point in time. While conducting our analysis, we found that Asia Cement (China) Holdings has 2 warning signs and it would be unwise to ignore them.

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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.