Does China Resources Land Limited’s (HKG:1109) Stock Price Account For Its Growth?

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Growth expectations for China Resources Land Limited (HKG:1109) are high, but many investors are starting to ask whether its last close at HK$34.25 can still be rationalized by the future potential. Below I will be talking through a basic metric which will help answer this question.

View our latest analysis for China Resources Land

Should you get excited about 1109’s future?

Analysts are predicting good growth prospects for China Resources Land over the next couple of years. Expectations from 26 analysts are certainly positive with earnings per share estimated to rise from today’s level of CN¥3.497 to CN¥4.871 over the next three years. This results in an annual growth rate of 12%, on average, which indicates a solid future in the near term.

Can 1109’s share price be justified by its earnings growth?

Stocks like China Resources Land, with a price-to-earnings (P/E) ratio of 8.41x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that 1109 is undervalued relative to the current HK market average of 12x , and overvalued based on current earnings compared to the Real Estate industry average of 6.48x .

SEHK:1109 Price Estimation Relative to Market, May 4th 2019
SEHK:1109 Price Estimation Relative to Market, May 4th 2019

We already know that 1109 appears to be overvalued when compared to its industry average. However, to be able to properly assess the value of a high-growth stock such as China Resources Land, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 8.41x and expected year-on-year earnings growth of 12% give China Resources Land a very low PEG ratio of 0.72x. This tells us that when we include its growth in our analysis China Resources Land’s stock can be considered relatively cheap , based on fundamental analysis.

What this means for you:

1109’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are 1109’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has 1109 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 1109’s historicals for more clarity.
  3. 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 editorial-team@simplywallst.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.