Should You Think About Buying Orient Overseas (International) Limited (HKG:316) Now?

Let's talk about the popular Orient Overseas (International) Limited (HKG:316). The company's shares saw a significant share price rise of over 20% in the past couple of months on the SEHK. As a large-cap stock, which tends to be well-covered 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? Let’s examine Orient Overseas (International)’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Orient Overseas (International)

Is Orient Overseas (International) still cheap?

Good news, investors! Orient Overseas (International) is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. 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 4.11x is currently well-below the industry average of 13.81x, meaning that it is trading at a cheaper price relative to its peers. However, given that Orient Overseas (International)’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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Orient Overseas (International) 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. However, with a negative profit growth of -6.9% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Orient Overseas (International). This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although 316 is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to 316, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on 316 for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for Orient Overseas (International) (of which 1 is concerning!) you should know about.

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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.
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