Is China Evergrande Group’s (HKG:3333) Future Growth Already Accounted For In Today’s Price?

China Evergrande Group (HKG:3333) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of HK$25.85 is based on unrealistic expectations. Below I will be talking through a basic metric which will help answer this question.

Check out our latest analysis for China Evergrande Group

Exciting times ahead?

Investors in China Evergrande Group have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. The consensus forecast from 15 analysts is bullish with earnings forecasted to rise significantly from today’s level of CN¥2.762 to CN¥4.515 over the next three years. This results in an annual growth rate of 15%, on average, which signals a market-beating outlook in the upcoming years.

Is 3333’s share price justified by its earnings growth?

China Evergrande Group is available at a price-to-earnings ratio of 8.02x, showing us it is undervalued relative to the current HK market average of 10.84x , and overvalued based on current earnings compared to the Real Estate industry average of 6.07x .

SEHK:3333 Price Estimation Relative to Market, March 16th 2019
SEHK:3333 Price Estimation Relative to Market, March 16th 2019

We understand 3333 seems to be overvalued based on its current earnings, compared to its industry peers. But, seeing as China Evergrande Group is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 8.02x and expected year-on-year earnings growth of 15% give China Evergrande Group a very low PEG ratio of 0.55x. So, when we include the growth factor in our analysis, China Evergrande Group appears relatively cheap , based on fundamental analysis.

What this means for you:

3333’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 urge you to complete your research by taking a look at the following:

  1. Financial Health: Are 3333’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 3333 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 3333’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.