Examining Air China (SEHK:753) Valuation After Recent Stock Momentum

Air China (SEHK:753) is back on the radar for anyone watching the skies or the stock market, catching some attention with recent moves that invite a closer look. While there is no headline-grabbing event driving this week’s price action, sometimes the absence of flashy news can signal as much as a dramatic announcement. For those wondering if the market is sending a subtle signal, now might be a good time to dig into what is really going on under the hood.

Looking at the bigger picture, Air China’s stock has gathered some upward momentum over the past year, with the share price surging 90% during that period. In the shorter term, the story is one of steadier growth, with a modest 6% gain in the past month and around 15% up since the start of the year. Those who have held on through the longer climb, however, remember a weaker three-year performance, as the stock has lagged during that timeframe. This hints at recent optimism now building after a tougher patch for airlines.

With share prices rallying but the memory of sluggish years still fresh, the question is whether Air China is trading at a discount or if the market is already pricing in all of the growth that may be ahead.

Price-to-Earnings of 123.7x: Is it justified?

Based on its price-to-earnings (P/E) ratio, Air China currently appears expensive when compared with both its industry peers and its own history. The P/E ratio, which gauges how much investors are willing to pay for each dollar of current earnings, is a widely used metric for evaluating whether a stock is priced reasonably relative to its profit generation. For airlines, which can have volatile earnings, this multiple helps investors weigh potential future profits against the risks of the sector.

At 123.7 times earnings, Air China is priced at a significant premium compared to the Asian Airlines industry average P/E of 11.4x. The multiple is also higher than peer averages and its estimated fair P/E multiple. This suggests the market may be expecting strong future earnings growth or overlooking one-off factors influencing short-term profits. However, a multiple this high is rarely justified without a compelling outlook for rapid and sustainable profit expansion.

Result: Fair Value of $15.64 (UNDERVALUED)

See our latest analysis for Air China.

However, market optimism could falter if Air China's earnings growth slows or if analyst price targets are revised down because of changing industry dynamics.

Find out about the key risks to this Air China narrative.

Another View: What Does Our DCF Model Say?

While one valuation method suggests Air China is commanding a steep premium, our SWS DCF model offers a different perspective. This model indicates the shares may actually be undervalued. Could this hidden value point to an overlooked opportunity?

Look into how the SWS DCF model arrives at its fair value.

Stay updated when valuation signals shift by adding Air China to your watchlist or portfolio. Alternatively, explore our screener to discover other companies that fit your criteria.

Build Your Own Air China Narrative

If you think the story can be seen from a different angle or want to dig deeper into the numbers yourself, you can craft your own take in just a few minutes. Do it your way.

A great starting point for your Air China research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

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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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