What Does China Harmony Auto Holding Limited's (HKG:3836) Share Price Indicate?

China Harmony Auto Holding Limited (HKG:3836), might not be a large cap stock, but it saw significant share price movement during recent months on the SEHK, rising to highs of HK$4.98 and falling to the lows of HK$3.86. 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 Harmony Auto Holding's current trading price of HK$3.90 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 Harmony Auto Holding’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for China Harmony Auto Holding

What is China Harmony Auto Holding worth?

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. 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 Harmony Auto Holding’s ratio of 8.72x is trading slightly below its industry peers’ ratio of 10.52x, which means if you buy China Harmony Auto Holding today, you’d be paying a decent price for it. And if you believe that China Harmony Auto Holding 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 Harmony Auto Holding’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 Harmony Auto Holding 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. China Harmony Auto Holding's earnings over the next few years are expected to increase by 49%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? 3836’s optimistic 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 3836? 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 an eye on 3836, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for 3836, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into China Harmony Auto Holding, you'd also look into what risks it is currently facing. Case in point: We've spotted 1 warning sign for China Harmony Auto Holding you should be aware of.

If you are no longer interested in China Harmony Auto Holding, 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.