When Should You Buy China Merchants Port Holdings Company Limited (HKG:144)?

China Merchants Port Holdings Company Limited (HKG:144), is not the largest company out there, 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, what if the stock is still a bargain? 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

What's the opportunity in China Merchants Port Holdings?

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. 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 7.13x is trading slightly above its industry peers’ ratio of 5.84x, which means if you buy China Merchants Port Holdings today, you’d be paying a relatively reasonable price for it. And if you believe that China Merchants Port Holdings should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. 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.

What kind of growth will China Merchants Port Holdings generate?

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. 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 China Merchants Port Holdings, it is expected to deliver a negative earnings growth of -10%, 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? 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 beneficial 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 tabs on 144 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 144 should the price fluctuate below the industry PE ratio.

If you want to dive deeper into China Merchants Port Holdings, you'd also look into what risks it is currently facing. For example, we've found that China Merchants Port Holdings has 4 warning signs (1 shouldn't be ignored!) 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.