Hutchison Telecommunications Hong Kong Holdings Limited (HKG:215), which is in the wireless telecom business, and is based in Hong Kong, received a lot of attention from a substantial price increase 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? Today I will analyse the most recent data on Hutchison Telecommunications Hong Kong Holdings’s outlook and valuation to see if the opportunity still exists.
What’s the opportunity in Hutchison Telecommunications Hong Kong Holdings?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 Hutchison Telecommunications Hong Kong Holdings’s ratio of 19.57x is trading slightly above its industry peers’ ratio of 14.88x, 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, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Hutchison Telecommunications Hong Kong 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 Hutchison Telecommunications Hong Kong 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. Though in the case of Hutchison Telecommunications Hong Kong Holdings, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? 215 seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial 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 tabs on 215 for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which 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 crystalize your views on 215 should the price fluctuate below its true value.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Hutchison Telecommunications Hong Kong Holdings. You can find everything you need to know about Hutchison Telecommunications Hong Kong Holdings in the latest infographic research report. If you are no longer interested in Hutchison Telecommunications Hong Kong Holdings, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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