While Hutchison Telecommunications Hong Kong Holdings Limited (HKG:215) might not be the most widely known stock at the moment, it saw significant share price movement during recent months on the SEHK, rising to highs of HK$1.56 and falling to the lows of HK$1.39. 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 Hutchison Telecommunications Hong Kong Holdings' current trading price of HK$1.45 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 Hutchison Telecommunications Hong Kong Holdings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Hutchison Telecommunications Hong Kong Holdings?
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. 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 19.36x is currently trading slightly above its industry peers’ ratio of 18.6x, which means if you buy Hutchison Telecommunications Hong Kong Holdings today, you’d be paying a relatively reasonable price for it. And if you believe that Hutchison Telecommunications Hong Kong Holdings should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Furthermore, it seems like Hutchison Telecommunications Hong Kong Holdings’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
What does the future of Hutchison Telecommunications Hong Kong Holdings look like?
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. 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 -16% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Hutchison Telecommunications Hong Kong Holdings. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? 215 seems priced close to industry peers right now, 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 215, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on 215 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. In addition to this, 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 215 should the price fluctuate below the industry PE ratio.
If you want to dive deeper into Hutchison Telecommunications Hong Kong Holdings, you'd also look into what risks it is currently facing. Be aware that Hutchison Telecommunications Hong Kong Holdings is showing 2 warning signs in our investment analysis and 1 of those is a bit concerning...
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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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