Stock Valuation: China Overseas Land & Investments Ltd (688)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
CHINA OVERSEAS LAND & INVESTMENT LTD Hong Kong/
HKSE
Real Estate – Real Estate Services – Real Estate – General HKD24.50
@ 02 Oct 2018
COMPANY PROFILE China Overseas Land & Investment Ltd is the property platform of China Overseas Holdings Ltd. The Company along with its subsidiaries, is engaged in property development and investment, and treasury operations.

China Overseas Land & Investment is a large real estate developer in China. At the end of 2017, it had projects in 31 mainland Chinese cities as well as Hong Kong and Macau. Property development accounts for 97% of the core earnings. The company is a subsidiary of China State Construction Engineering, China’s largest construction company. It holds a 38% stake in China Overseas Grand Oceans, a real estate developer focusing on lower-tier Chinese cities.

Stock Code 688
Valuation Analysis Below

China Overseas Land & Investment Price to EBIT

The Price Earnings (PE) Ratio is the most frequently used valuation indicator for a stock. However, there are times when this ratio cannot be used e.g. when the company reports a loss or profit is so minimal that it results in an abnormally high PE Ratio. Or Net Profit After Tax may be volatile and it is better to use Earnings Before Interest and Tax (EBIT) to value the company. We use the PE Band or Price/EBIT Band to show whether a stock is overvalued or undervalued based on its historical valuation.
At the price of HKD24.50 as at 02 Oct 2018, China Overseas Land & Investment Ltd is trading at a Price to EBIT Ratio of 4.4 times last 12 months earnings.  This is a 20.4% discount to its current fair Price to EBIT Ratio of 5.5 times. (Price based on the fair Price to EBIT Ratio of the company is indicated by the red line.)
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Company description, historical financial statements data and price data are from gurufocus.com or moneycontrol.com. Estimates are from marketscreener.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

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