China MeiDong Auto Holdings Limited (HKG:1268), might not be a large cap stock, but it saw significant share price movement during recent months on the SEHK, rising to highs of HK$3.33 and falling to the lows of HK$2.54. 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 MeiDong Auto Holdings' current trading price of HK$2.66 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at China MeiDong Auto Holdings's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's The Opportunity In China MeiDong Auto Holdings?
China MeiDong Auto Holdings appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, we've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. We find that China MeiDong Auto Holdings's ratio of 23.68x is above its peer average of 7.97x, which suggests the stock is trading at a higher price compared to the Specialty Retail industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that China MeiDong Auto Holdings's share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of China MeiDong Auto Holdings look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it's the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. China MeiDong Auto Holdings' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? 1268's optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe 1268 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 an eye on 1268 for a while, 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 optimistic prospect is encouraging for 1268, which means it's worth diving deeper into other factors in order to take advantage of the next price drop.
If you'd like to know more about China MeiDong Auto Holdings as a business, it's important to be aware of any risks it's facing. At Simply Wall St, we found 2 warning signs for China MeiDong Auto Holdings and we think they deserve your attention.
If you are no longer interested in China MeiDong Auto Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.