What Does China Ruyi Holdings Limited's (HKG:136) Share Price Indicate?

China Ruyi Holdings Limited (HKG:136), might not be a large cap stock, but it led the SEHK gainers with a relatively large price hike in the past couple of weeks. As a HK$21b market-cap stock, it seems odd China Ruyi Holdings is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine China Ruyi Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for China Ruyi Holdings

What's the opportunity in China Ruyi Holdings?

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 14.93x is currently trading slightly below its industry peers’ ratio of 14.98x, which means if you buy China Ruyi Holdings today, you’d be paying a decent price for it. And if you believe that China Ruyi 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. Although, there may be an opportunity to buy in the future. This is because China Ruyi Holdings’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will China Ruyi Holdings generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for China Ruyi Holdings, at least in the near future.

What this means for you:

Are you a shareholder? Currently, 136 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 reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on 136, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 136 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. 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 gel your views on 136 should the price fluctuate below the industry PE ratio.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that China Ruyi Holdings has 2 warning signs and it would be unwise to ignore these.

If you are no longer interested in China Ruyi Holdings, 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.