Should You Investigate Asia Cement (China) Holdings Corporation (HKG:743) At HK$7.60?

While Asia Cement (China) Holdings Corporation (HKG:743) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at Asia Cement (China) Holdings’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Asia Cement (China) Holdings

Is Asia Cement (China) Holdings 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. 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 3.96x is trading slightly below its industry peers’ ratio of 5.96x, 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. So, is there another chance to buy low in the future? Given that Asia Cement (China) Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Asia Cement (China) Holdings 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 Asia Cement (China) Holdings, it is expected to deliver a relatively unexciting top-line growth of 4.8% in the next few years, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.

What this means for you:

Are you a shareholder? It seems like the market has already priced in 743’s growth outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at 743? Will you have enough conviction to buy should the price fluctuate below the the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on 743, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

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. 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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