At HK$41.15, Is It Time To Put Wharf Real Estate Investment Company Limited (HKG:1997) On Your Watch List?

Let's talk about the popular Wharf Real Estate Investment Company Limited (HKG:1997). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the SEHK. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Wharf Real Estate Investment’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Wharf Real Estate Investment

What's the opportunity in Wharf Real Estate Investment?

According to my valuation model, Wharf Real Estate Investment seems to be fairly priced at around 6.80% above my intrinsic value, which means if you buy Wharf Real Estate Investment today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth HK$38.53, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Wharf Real Estate Investment’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Wharf Real Estate Investment generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. Though in the case of Wharf Real Estate Investment, it is expected to deliver a negative revenue growth of -4.9% over the next couple of years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? 1997 seems fairly priced right now, 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 optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on 1997 for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which 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 crystalize your views on 1997 should the price fluctuate below its true value.

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 Wharf Real Estate Investment you should know about.

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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.
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