China Communications Services Corporation Limited (HKG:552), which is in the telecom business, and is based in China, saw significant share price movement during recent months on the SEHK, rising to highs of HK$8.45 and falling to the lows of HK$6.42. 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 Communications Services’s current trading price of HK$6.76 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 China Communications Services’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is China Communications Services still cheap?The stock seems fairly valued at the moment according to my relative valuation model. 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 Communications Services’s ratio of 13.8x is trading slightly below its industry peers’ ratio of 15.1x, which means if you buy China Communications Services today, you’d be paying a reasonable price for it. And if you believe China Communications Services should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. Furthermore, it seems like China Communications Services’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What does the future of China Communications Services look like?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. With profit expected to grow by 49% over the next couple of years, the future seems bright for China Communications Services. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? 552’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at 552? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping an eye on 552, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for 552, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on China Communications Services. You can find everything you need to know about China Communications Services in the latest infographic research report. If you are no longer interested in China Communications Services, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
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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. Thank you for reading.