Is It Too Late 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 saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Asia Cement (China) Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Asia Cement (China) Holdings

Is Asia Cement (China) Holdings still cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 2.83x is currently trading slightly below its industry peers’ ratio of 6.02x, which means if you buy Asia Cement (China) Holdings today, you’d be paying a decent price for it. And if you believe Asia Cement (China) Holdings should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. 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. 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. However, with an expected decline of -7.9% 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 reduce the risk in 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 an eye 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 gel your views on 743 should the price fluctuate below the industry PE ratio.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 1 warning sign for Asia Cement (China) Holdings you should know about.

If you are no longer interested in Asia Cement (China) Holdings, 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.