COSCO SHIPPING Ports Limited (HKG:1199), might not be a large cap stock, but it led the SEHK gainers with a relatively large price hike in the past couple of weeks. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine COSCO SHIPPING Ports’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What is COSCO SHIPPING Ports worth?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 7.61x is currently trading slightly below its industry peers’ ratio of 10.82x, which means if you buy COSCO SHIPPING Ports today, you’d be paying a decent price for it. And if you believe COSCO SHIPPING Ports should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that COSCO SHIPPING Ports’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.
Can we expect growth from COSCO SHIPPING Ports?
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 COSCO SHIPPING Ports, it is expected to deliver a negative earnings growth of -0.6%, 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? 1199 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 1199, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on 1199 for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, 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 1199 should the price fluctuate below the industry PE ratio.
If you'd like to know more about COSCO SHIPPING Ports as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 3 warning signs for COSCO SHIPPING Ports you should be mindful of and 1 of them is potentially serious.
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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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