At HK$13.18, Is Zhongsheng Group Holdings Limited (HKG:881) Worth Looking At Closely?

Zhongsheng Group Holdings Limited (HKG:881), is not the largest company out there, but it saw significant share price movement during recent months on the SEHK, rising to highs of HK$18.72 and falling to the lows of HK$13.14. 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 Zhongsheng Group Holdings' current trading price of HK$13.18 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Zhongsheng Group Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Zhongsheng Group Holdings

What's The Opportunity In Zhongsheng Group Holdings?

Great news for investors – Zhongsheng Group Holdings is still trading at a fairly cheap price according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’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 4.65x is currently well-below the industry average of 9.3x, meaning that it is trading at a cheaper price relative to its peers. What’s more interesting is that, Zhongsheng Group Holdings’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to move closer to its industry peers, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Zhongsheng Group Holdings?

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 a negative profit growth of -0.1% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Zhongsheng Group Holdings. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although 881 is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. We recommend you think about whether you want to increase your portfolio exposure to 881, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on 881 for some time, but hesitant on making the leap, we recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Zhongsheng Group Holdings.

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

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

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.