Is It Too Late To Consider Buying Shenzhen Investment Limited (HKG:604)?

Shenzhen Investment Limited (HKG:604), might not be a large cap stock, but it saw its share price hover around a small range of HK$2.54 to HK$2.79 over the last few weeks. But is this actually reflective of the share value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Shenzhen Investment’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Shenzhen Investment

What's the opportunity in Shenzhen Investment?

The share price seems sensible at the moment 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 6.42x is currently trading slightly below its industry peers’ ratio of 8.29x, which means if you buy Shenzhen Investment today, you’d be paying a decent price for it. And if you believe Shenzhen Investment should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like Shenzhen Investment’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Shenzhen Investment generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. However, with a relatively muted profit growth of 7.2% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Shenzhen Investment, at least in the short term.

What this means for you:

Are you a shareholder? 604’s future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at 604? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on 604, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Shenzhen Investment, you'd also look into what risks it is currently facing. For example, we've found that Shenzhen Investment has 2 warning signs (1 doesn't sit too well with us!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Shenzhen Investment, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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. 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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