China Suntien Green Energy Corporation Limited (HKG:956) closed yesterday at HK$2.14, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.
What can we expect from China Suntien Green Energy in the future?
Analysts are predicting good growth prospects for China Suntien Green Energy over the next couple of years. Expectations from 10 analysts are certainly positive with earnings per share estimated to surge from current levels of CN¥0.309 to CN¥0.431 over the next three years. This indicates an estimated earnings growth rate of 13.6% per year, on average, which illustrates an optimistic outlook in the near term.
Is 956’s share price justified by its earnings growth?
Stocks like China Suntien Green Energy, with a price-to-earnings (P/E) ratio of 6.03x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that 956 is undervalued relative to the current HK market average of 11.51x , and undervalued based on its latest annual earnings update compared to the oil and gas average of 12x . This multiple is a median of profitable companies of 24 Oil and Gas companies in HK including Chinese People Holdings, JTF International Holdings and New Times Energy.
We already know that 956 appears to be undervalued based on its PE ratio, compared to the industry average. But, to properly examine the value of a high-growth stock such as China Suntien Green Energy, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 6.03x and expected year-on-year earnings growth of 13.6% give China Suntien Green Energy an extremely low PEG ratio of 0.44x. This tells us that when we include its growth in our analysis China Suntien Green Energy’s stock can be considered relatively cheap , based on fundamental analysis.