What Does China Water Affairs Group Limited's (HKG:855) Share Price Indicate?

China Water Affairs Group Limited (HKG:855), which is in the water utilities business, and is based in Hong Kong, received a lot of attention from a substantial price movement on the SEHK over the last few months, increasing to HK$6.73 at one point, and dropping to the lows of HK$5.29. 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 Water Affairs Group's current trading price of HK$5.68 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 Water Affairs Group’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for China Water Affairs Group

What is China Water Affairs Group worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’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 5.69x is currently trading slightly above its industry peers’ ratio of 5.63x, which means if you buy China Water Affairs Group today, you’d be paying a relatively sensible price for it. And if you believe China Water Affairs Group should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. In addition to this, it seems like China Water Affairs Group’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

What does the future of China Water Affairs Group 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 Water Affairs Group’s earnings over the next few years are expected to increase by 37%, 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? 855’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at 855? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on 855, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for 855, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on China Water Affairs Group. You can find everything you need to know about China Water Affairs Group in the latest infographic research report. If you are no longer interested in China Water Affairs Group, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

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