Is it time to add Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564) at HK$7.94 to your watchlist?
Zhengzhou Coal Mining Machinery Group Company Limited (HKG:564) may not be a large-cap stock, but it led the SEHK winners with a relatively large rally over the past few weeks. As a stock with a market cap of HK$24 billion, it seems odd that Zhengzhou Coal Mining Machinery Group doesn’t get better coverage from analysts. However, stocks with low coverage are more likely to be mispriced, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a closer look at Zhengzhou Coal Mining Machinery Group’s valuation and outlook to see if there’s still a bargain opportunity.
Check out our latest analysis for Zhengzhou Coal Mining Machinery Group
What is Zhengzhou Coal Mining Machinery Group worth?
Based on my price multiple model, which compares the company’s price-to-earnings ratio to the industry average, the stock price appears justified. In this case, I used the price-to-earnings (P/E) ratio because there isn’t enough information to reliably predict the stock’s cash flows. I find Zhengzhou Coal Mining Machinery Group’s ratio of 5.83x is trading slightly below its industry peers’ ratio of 10.18x, meaning that if you buy Zhengzhou Coal Mining Machinery Group today, you are getting a reasonable price would pay. And if you think Zhengzhou Coal Mining Machinery Group should trade in this range, then there’s not much room for the stock price to outperform other industry peers over the long term. In addition, Zhengzhou Coal Mining Machinery Group’s share price also appears to be relatively stable compared to the rest of the market, as evidenced by its low beta. This may mean that the stock is less likely to fall due to natural market volatility, suggesting there are fewer opportunities to buy going forward.
What kind of growth will Zhengzhou Coal Mining Machinery Group generate?
Investors looking for growth in their portfolio should consider a company’s prospects before buying its stock. Buying a great company with a robust outlook at a great price is always a good investment, so let’s also take a look at the company’s future expectations. With earnings growth expected at 24% next year, the near-term future looks bright for Zhengzhou Coal Mining Machinery Group. It looks like there is more cash flow on the horizon for the stock, which should result in a higher stock valuation.
What this means for you:
Are you a shareholder? 564’s upbeat future growth appears to have been priced into the current stock price, with shares trading around industry-standard price multiples. But there are other important factors that we haven’t considered today, such as the company’s financial strength. Have these factors changed since you last looked at 564? Will you have enough conviction to buy if the price dips below the industry P/E?
Are you a potential investor? If you’ve been eyeing 564, now may not be the best time to buy as they are industry price multiples. However, the optimistic outlook is encouraging for 564, which means it is worth delving deeper into other factors, such as the strength of its balance sheet, to profit from the next downside.
With this in mind, it is important that you are aware of the risks involved if you wish to conduct any further analysis about the company. At Simply Wall Street we found 2 warning signs for Zhengzhou Coal Mining Machinery Group and we think they deserve your attention.
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This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.