Stock Valuation: Future Land Development Holdings Ltd (1030)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
Real Estate – Real Estate Services – Real Estate Services HKD5.07
@ 02 Oct 2018
COMPANY PROFILE Future Land Development Holdings Ltd is a property developer. Through its subsidiaries, it is engaged in the development of residential properties and mixed use complexes and management of commercial complexes and other properties.

Future Land Development Holdings is an investment holding company that develops and sells properties in the People’s Republic of China. The company is headquartered in China and earns all revenue domestically. The company focuses on the development and sale of residential properties and mixed-use developments. In addition, the company has a property management arm and provides other property-related services such as design consulting, department-store management, apartment leasing, information technology, market research, hotel management, and conference administration services.

Stock Code 1030
Stock Valuation Below

Future Land Development Price to Cash Flow

Price to Cash Flow is an alternative method to value shares. This is because accounting profits can be subject to manipulation. Therefore, some investors prefer to value a company based on cash flows generated by the operating activities of the company. It also acts as a reality check to valuation measures such as Price to Earnings and Price to Sales. If a company generates high profits and sales but not operating cash flows, it could be heading for trouble because it is cash that pays the operating expenses. However, the Price to Cash Flow ratio of most firms are volatile and should not be used in isolation to determine the valuation of the stock.
The current Price to Cash Flow ratio of the company cannot be determined e.g. when current cash flow is negative or when estimates are not available. However, the stock is trading at 0.4 times PCF for year ending Dec 2019. This is a 73.7% discount to the fair PCF of 1.4 on that date.
Is the stock undervalued or overvalued?
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 or Estimates are from – Thomson Reuters.
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