While China Gas Holdings Limited (HKG:384) might not have the largest market cap around , it received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$7.48 at one point, and dropping to the lows of HK$5.87. 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 Gas Holdings' current trading price of HK$6.11 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 China Gas Holdings's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What Is China Gas Holdings Worth?
China Gas Holdings is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. We've used the price-to-earnings ratio in this instance because there's not enough visibility to forecast its cash flows. The stock's ratio of 10.43x is currently well-above the industry average of 8.34x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that China Gas Holdings'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.
Can we expect growth from China Gas Holdings?
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 Gas Holdings' earnings over the next few years are expected to increase by 61%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? 384'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 384 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 384 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 optimistic prospect is encouraging for 384, which means it's worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into China Gas Holdings, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for China Gas Holdings and you'll want to know about it.
If you are no longer interested in China Gas Holdings, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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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.
