Today we’re going to take a look at the well-established Great Wall Motor Company Limited (HKG:2333). The company’s stock received a lot of attention from a substantial price increase on the SEHK over the last few months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Great Wall Motor’s outlook and value based on the most recent financial data to see if the opportunity still exists.
View our latest analysis for Great Wall Motor
What is Great Wall Motor worth?
Great Wall Motor is currently expensive based on my price multiple model, where I look at the company’s price-to-earnings ratio in comparison 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 Great Wall Motor’s ratio of 20.9x is above its peer average of 11.77x, which suggests the stock is trading at a higher price compared to the Auto industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since Great Wall Motor’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of Great Wall Motor 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. With profit expected to grow by 49% over the next couple of years, the future seems bright for Great Wall Motor. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? 2333’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe 2333 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 2333 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 2333, 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 Great Wall Motor, you’d also look into what risks it is currently facing. For example, Great Wall Motor has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
If you are no longer interested in Great Wall Motor, 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. 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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