Growth expectations for Xinyi Solar Holdings Limited (HKG:968) are high, but many investors are starting to ask whether its last close at HK$2.27 can still be rationalized by the future potential. Below I will be talking through a basic metric which will help answer this question.
Has the 968 train has slowed down?According to the analysts covering the company, the following few years should bring about good growth prospects for Xinyi Solar Holdings. The consensus forecast from 17 analysts is buoyant with earnings per share estimated to surge from current levels of HK$0.308 to HK$0.356 over the next three years. This indicates an estimated earnings growth rate of 11% per year, on average, which indicates a solid future in the near term.
Can 968’s share price be justified by its earnings growth?
Xinyi Solar Holdings is trading at quite low price-to-earnings (PE) ratio of 7.36x. This tells us the stock is undervalued relative to the current HK market average of 10.74x , and undervalued based on its latest annual earnings update compared to the semiconductor average of 15.72x . This multiple is a median of profitable companies of 18 Semiconductor companies in HK including Wai Chi Holdings, GCL-Poly Energy Holdings and Flat Glass Group.
We already know that 968 appears to be undervalued based on its PE ratio, compared to the industry average. But, to be able to properly assess the value of a high-growth stock such as Xinyi Solar Holdings, we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 7.36x and expected year-on-year earnings growth of 11% give Xinyi Solar Holdings a very low PEG ratio of 0.69x. This means that, when we account for Xinyi Solar Holdings’s growth, the stock can be viewed as relatively cheap , based on fundamental analysis.
What this means for you:
968’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Financial Health: Are 968’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has 968 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 968’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.