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Geely, Great Wall or Dongfeng: Which is the Cheapest China Auto Stock Now?

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.

Price-to-book

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.

Price-to-earnings

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.

Dividend yield

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.

Conclusion

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.

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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.