Does China Yuchai International Limited's (NYSE:CYD) Stock Price Account For Its Growth?

China Yuchai International Limited (NYSE:CYD) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of $15.41 is based on unrealistic expectations. Let’s look into this by assessing CYD's expected growth over the next few years.

See our latest analysis for China Yuchai International

Has the CYD train has slowed down?

Investors in China Yuchai International have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. Expectations from 3 analysts are buoyant with earnings forecasted to rise significantly from today's level of CN¥23.178 to CN¥26.777 over the next three years. This indicates an estimated earnings growth rate of 13% per year, on average, which indicates a solid future in the near term.

Is CYD available at a good price after accounting for its growth?

China Yuchai International is available at an extremely low price-to-earnings ratio of 4.6x, showing us it is undervalued based on its latest annual earnings update compared to the machinery average of 19.73x , and undervalued relative to the current US market average of 18.45x . This multiple is a median of profitable companies of 24 Machinery companies in US including Eco Energy Tech Asia, Hebron Technology and Meritor.

We already know that CYD appears to be undervalued based on its PE ratio, compared to the industry average. But, since China Yuchai International is a high-growth stock, we must also account for its earnings growth by using calculation called the PEG ratio. A PE ratio of 4.6x and expected year-on-year earnings growth of 13% give China Yuchai International an extremely low PEG ratio of 0.35x. This tells us that when we include its growth in our analysis China Yuchai International's stock can be considered relatively cheap , based on its fundamentals.

What this means for you:

CYD's current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you're a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

1. Financial Health: Are CYD’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Past Track Record: Has CYD been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of CYD's historicals for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.