Does Sino-Ocean Group Holding Limited’s (HKG:3377) Stock Price Account For Its Growth?

Sino-Ocean Group Holding Limited (HKG:3377) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of HK$3.24 is based on unrealistic expectations. Below I will be talking through a basic metric which will help answer this question.

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Check out our latest analysis for Sino-Ocean Group Holding

Should you get excited about 3377’s future?

Sino-Ocean Group Holding is poised for extremely high earnings growth in the near future. Expectations from 16 analysts are extremely bullish with earnings forecasted to rise significantly from today’s level of CN¥0.473 to CN¥0.903 over the next three years. On average, this leads to a growth rate of 20% each year, which indicates an exceedlingly positive future in the near term.

Is 3377’s share price justified by its earnings growth?

Stocks like Sino-Ocean Group Holding, with a price-to-earnings (P/E) ratio of 6.03x, 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 3377 is undervalued relative to the current HK market average of 11.17x , and undervalued based on its latest annual earnings update compared to the Real Estate average of 6.29x .

SEHK:3377 Price Estimation Relative to Market, May 20th 2019
SEHK:3377 Price Estimation Relative to Market, May 20th 2019

Given that 3377’s price-to-earnings of 6.03x lies below the industry average, this already indicates that the company could be potentially undervalued. However, to properly examine the value of a high-growth stock such as Sino-Ocean Group Holding, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 6.03x and expected year-on-year earnings growth of 20% give Sino-Ocean Group Holding an extremely low PEG ratio of 0.30x. This means that, when we account for Sino-Ocean Group Holding’s growth, the stock can be viewed as relatively cheap , based on its fundamentals.

What this means for you:

3377’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 3377’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 3377 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 3377’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.