At HK$0.80, Is It Time To Put China ZhengTong Auto Services Holdings Limited (HKG:1728) On Your Watch List?

While China ZhengTong Auto Services Holdings Limited (HKG:1728) might not be the most widely known stock at the moment, it saw a decent share price growth in the teens level on the SEHK over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine China ZhengTong Auto Services Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for China ZhengTong Auto Services Holdings

What's the opportunity in China ZhengTong Auto Services Holdings?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 8.16% above my intrinsic value, which means if you buy China ZhengTong Auto Services Holdings today, you’d be paying a relatively fair price for it. And if you believe that the stock is really worth HK$0.74, then there isn’t really any room for the share price grow beyond what it’s currently trading. So, is there another chance to buy low in the future? Given that China ZhengTong Auto Services Holdings’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will China ZhengTong Auto Services Holdings 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. China ZhengTong Auto Services Holdings' revenue growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in 1728’s positive outlook, with shares trading around its fair value. 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on 1728, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing China ZhengTong Auto Services Holdings at this point in time. Every company has risks, and we've spotted 3 warning signs for China ZhengTong Auto Services Holdings (of which 1 is a bit concerning!) you should know about.

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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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