At HK$15.92, Is China Longyuan Power Group Corporation Limited (HKG:916) Worth Looking At Closely?

By
Simply Wall St
Published
February 18, 2022
SEHK:916
Source: Shutterstock

China Longyuan Power Group Corporation Limited (HKG:916) saw significant share price movement during recent months on the SEHK, rising to highs of HK$19.20 and falling to the lows of HK$15.18. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether China Longyuan Power Group's current trading price of HK$15.92 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at China Longyuan Power Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for China Longyuan Power Group

Is China Longyuan Power Group still cheap?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 Longyuan Power Group’s ratio of 18.42x is above its peer average of 9.86x, which suggests the stock is trading at a higher price compared to the Renewable Energy industry. Another thing to keep in mind is that China Longyuan Power Group’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.

What does the future of China Longyuan Power Group look like?

earnings-and-revenue-growth
SEHK:916 Earnings and Revenue Growth February 18th 2022

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. With profit expected to grow by 72% over the next couple of years, the future seems bright for China Longyuan Power Group. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in 916’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe 916 should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on 916 for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for 916, which means 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 China Longyuan Power Group at this point in time. Case in point: We've spotted 2 warning signs for China Longyuan Power Group you should be mindful of and 1 of these is a bit unpleasant.

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

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