What Does Guangzhou R&F Properties Co., Ltd.'s (HKG:2777) Share Price Indicate?

Guangzhou R&F Properties Co., Ltd. (HKG:2777), is not the largest company out there, but it saw a decent share price growth in the teens level on the SEHK over the last few months. As a mid-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 Guangzhou R&F Properties’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Guangzhou R&F Properties

What's the opportunity in Guangzhou R&F Properties?

Great news for investors – Guangzhou R&F Properties is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 1.67x is currently well-below the industry average of 6.97x, meaning that it is trading at a cheaper price relative to its peers. Another thing to keep in mind is that Guangzhou R&F Properties’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

Can we expect growth from Guangzhou R&F Properties?

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 a negative profit growth of -9.2% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Guangzhou R&F Properties. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although 2777 is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to 2777, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on 2777 for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Guangzhou R&F Properties at this point in time. For example, Guangzhou R&F Properties has 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If you are no longer interested in Guangzhou R&F Properties, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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