Is There Now An Opportunity In Hopson Development Holdings Limited (HKG:754)?

While Hopson Development Holdings Limited (HKG:754) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the SEHK. As a HK$78b market-cap stock, it seems odd Hopson Development Holdings is not more well-covered by analysts. However, this is not necessarily a bad thing given that there are less eyes on the stock to push it closer to fair value. Is there still an opportunity to buy? Let’s examine Hopson Development Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Hopson Development Holdings

Is Hopson Development Holdings still cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 5.79x is currently trading slightly below its industry peers’ ratio of 7.55x, which means if you buy Hopson Development Holdings today, you’d be paying a reasonable price for it. And if you believe that Hopson Development Holdings should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. In addition to this, it seems like Hopson Development Holdings’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Hopson Development Holdings look like?

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 an expected decline of -12% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Hopson Development Holdings. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Currently, 754 appears to be trading around industry price multiples, 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 754, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 754 for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, 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 crystallize your views on 754 should the price fluctuate below the industry PE ratio.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For instance, we've identified 4 warning signs for Hopson Development Holdings (2 shouldn't be ignored) you should be familiar with.

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

If you’re looking to trade a wide range of investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.