Is It Time To Consider Buying Sinotrans Limited (HKG:598)?

Sinotrans Limited (HKG:598), might not be a large cap stock, but it saw a decent share price growth in the teens level 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 take a look at Sinotrans’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Sinotrans

What is Sinotrans 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 3.9x is currently trading slightly below its industry peers’ ratio of 8.6x, which means if you buy Sinotrans today, you’d be paying a decent price for it. And if you believe that Sinotrans should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, Sinotrans’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What does the future of Sinotrans look like?

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. However, with a relatively muted profit growth of 4.7% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Sinotrans, at least in the short term.

What this means for you:

Are you a shareholder? 598’s future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at 598? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on 598, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Sinotrans at this point in time. In terms of investment risks, we've identified 1 warning sign with Sinotrans, and understanding this should be part of your investment process.

If you are no longer interested in Sinotrans, 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.