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Should You Invest In The Real Estate Stock China Overseas Property Holdings Limited (HKG:2669)?

China Overseas Property Holdings Limited (HKG:2669), a HK$8.51b small-cap, is a real estate company operating in an industry which remains the single largest sector globally, and has continued to play a key role in investor portfolios. Real estate analysts are forecasting for the entire industry, a positive double-digit growth of 12.9% in the upcoming year , and an enormous growth of 92.2% over the next couple of years. This rate is larger than the growth rate of the Hong Kong stock market as a whole. Today, I will analyse the industry outlook, and also determine whether China Overseas Property Holdings is a laggard or leader relative to its real estate sector peers.

See our latest analysis for China Overseas Property Holdings

What’s the catalyst for China Overseas Property Holdings’s sector growth?

SEHK:2669 Past Future Earnings August 29th 18
SEHK:2669 Past Future Earnings August 29th 18

As yields for high quality real estate investments came under pressure, investors have swung towards more niche buildings such as student housing and data storage facilities. Over the past year, the industry saw growth in the forties, beating the Hong Kong market growth of 14.8%. China Overseas Property Holdings lags the pack with its lower growth rate of 37.8% over the past year, which indicates the company has been growing at a slower pace than its real estate peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 16.7% in the upcoming year. This future growth may make China Overseas Property Holdings a more expensive stock relative to its peers.

Is China Overseas Property Holdings and the sector relatively cheap?

SEHK:2669 PE PEG Gauge August 29th 18
SEHK:2669 PE PEG Gauge August 29th 18

Real estate companies are typically trading at a PE of 6.33x, lower than the rest of the Hong Kong stock market PE of 11.83x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 9.5% on equities compared to the market’s 9.7%. On the stock-level, China Overseas Property Holdings is trading at a higher PE ratio of 22.13x, making it more expensive than the average real estate stock. In terms of returns, China Overseas Property Holdings generated 35.7% in the past year, which is 26.1% over the real estate sector.

Next Steps:

China Overseas Property Holdings’s future growth prospect aligns with that of the broader market, however its relative value seems to be above the rest of the industry. This could indicate the price is reflective of factors other than growth. If China Overseas Property Holdings has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other real estate companies. If you’re looking for growth, it seems other industry peers are also delivering the same rate. However, before you make a decision on the stock, I suggest you look at China Overseas Property Holdings’s fundamentals in order to build a holistic investment thesis.

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  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Historical Track Record: What has 2669’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of China Overseas Property Holdings? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.