Should You Think About Buying China Overseas Grand Oceans Group Limited (HKG:81) Now?

While China Overseas Grand Oceans Group Limited (HKG:81) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the SEHK, rising to highs of HK$3.88 and falling to the lows of HK$3.05. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether China Overseas Grand Oceans Group's current trading price of HK$3.24 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at China Overseas Grand Oceans Group’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 China Overseas Grand Oceans Group

Is China Overseas Grand Oceans Group 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. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that China Overseas Grand Oceans Group’s ratio of 2.12x is trading slightly below its industry peers’ ratio of 6.24x, which means if you buy China Overseas Grand Oceans Group today, you’d be paying a decent price for it. And if you believe that China Overseas Grand Oceans Group 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. Furthermore, China Overseas Grand Oceans Group’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What kind of growth will China Overseas Grand Oceans Group generate?

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. Though in the case of China Overseas Grand Oceans Group, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? 81 seems priced close to industry peers right now, 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 81, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 81 for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, 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 gel your views on 81 should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing China Overseas Grand Oceans Group at this point in time. To help with this, we've discovered 4 warning signs (2 shouldn't be ignored!) that you ought to be aware of before buying any shares in China Overseas Grand Oceans Group.

If you are no longer interested in China Overseas Grand Oceans Group, 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. 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.