To Keep Reading
One of the most hated industries in China lately is the automobile industry. In the last few years, we have seen automobile companies like Geely Automobile Holdings Limited (SEHK: 175) losing more than 50% of their market capitalisation! In fact, Geely is not alone as other automobile companies like Great Wall Motor Company Limited (SEHK: 2333) have seen their share prices decline by a similar magnitude.
Clearly, there are good reasons for investors to dislike the industry (such as lower automobile sales in China). Still, the sell-off has left many of these companies trading at extremely cheap valuations. Thus, it’s a good place to hunt for investment ideas.
In this article, I’ll compare the valuations of three automobile companies, namely Geely Automobile, Great Wall Motor and Dongfeng Motor Group Company Limited (SEHK: 489). The reason is to find out which of the trio has the lowest valuation now.
To do so, we will use three valuation metrics: the price-to-book (PB) ratio, price-to-earnings (PE) ratio, and dividend yield to give us a quick overview.
To begin with, Geely Automobile, Great Wall Motor, and Dongfeng Motor have PB ratios of 2.3, 0.8 and 0.5 respectively. The lower PB ratios for Dongfeng Motor suggest that it has the lowest valuation based on the PB ratio.
Next, Geely Automobile, Great Wall Motor, and Dongfeng Motor have PE ratios of 8.3, 7.9 and 4.3, respectively. Again, Dongfeng Motor appears to have the lowest valuation based on its low PE ratio.
Last but not least, the respective dividend yields for Geely Automobile, Great Wall Motor, and Dongfeng Motor are 2.6%, 6.3%, and 5.2%. The higher a stock’s yield is, the lower its valuation.
Thus, we can see that Great Wall Motor has the lowest valuation in terms of the dividend yield.
Overall, we can argue that Dongfeng Motor is probably the cheapest stock out of the three, mainly due to its low PB and PE ratios.
Nevertheless, investors should be reminded that valuation should not be the sole factor in deciding which stocks to invest in. In fact, investors should carry out fundamental research before investing in any company.
Thinking about investing in Hong Kong stocks? Discover 4 simple ways to turn it into your own “money tree”. We outline practically everything you need to know about the Hong Kong market in our latest report. Click here to see how you can grab your FREE copy of “A Foolish Guide for Hong Kong Investors” today.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.