Should You Investigate Datang International Power Generation Co., Ltd. (HKG:991) At HK$1.21?

While Datang International Power Generation Co., Ltd. (HKG:991) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$1.33 at one point, and dropping to the lows of HK$1.14. 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 Datang International Power Generation's current trading price of HK$1.21 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Datang International Power Generation’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Datang International Power Generation

Is Datang International Power Generation still cheap?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 Datang International Power Generation’s ratio of 5.93x is trading slightly below its industry peers’ ratio of 8.22x, which means if you buy Datang International Power Generation today, you’d be paying a decent price for it. And if you believe Datang International Power Generation should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. In addition to this, it seems like Datang International Power Generation’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Datang International Power Generation?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 1.7% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Datang International Power Generation, at least in the short term.

What this means for you:

Are you a shareholder? 991’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 track record of its management team. Have these factors changed since the last time you looked at 991? 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 991, now may not be the most optimal 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 Datang International Power Generation at this point in time. When we did our research, we found 2 warning signs for Datang International Power Generation (1 is potentially serious!) that we believe deserve your full attention.

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This article by Simply Wall St is general in nature. 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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