Is Now An Opportune Moment To Examine China Merchants Port Holdings Company Limited (HKG:144)?

China Merchants Port Holdings Company Limited (HKG:144), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the SEHK over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine China Merchants Port Holdings’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for China Merchants Port Holdings

Is China Merchants Port Holdings Still Cheap?

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. 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 Merchants Port Holdings’s ratio of 5.58x is trading slightly below its industry peers’ ratio of 6.11x, which means if you buy China Merchants Port Holdings today, you’d be paying a reasonable price for it. And if you believe China Merchants Port Holdings 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. Is there another opportunity to buy low in the future? Since China Merchants Port Holdings’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

Can we expect growth from China Merchants Port Holdings?

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. However, with a negative profit growth of -1.3% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for China Merchants Port Holdings. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, 144 appears to be trading around industry price multiples, 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 144, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on 144 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 144 should the price fluctuate below the industry PE ratio.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, we've found that China Merchants Port Holdings has 3 warning signs (1 is concerning!) that deserve your attention before going any further with your analysis.

If you are no longer interested in China Merchants Port Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.