China Modern Dairy Holdings (SEHK:1117) Could Be 89% Below Fair Value Following Its Rally

China Modern Dairy Holdings (SEHK:1117) has drawn fresh attention after recent share price moves, with the stock closing at HK$1.645 and showing mixed short term returns alongside strong multi year total return figures.

The recent move to HK$1.645 follows a strong 90 day share price return of 66.16% and a 1 year total shareholder return of 29.53%. This suggests momentum around China Modern Dairy Holdings has been building as investors reassess both growth prospects and risks.

Compare how China Modern Dairy Holdings stands alongside other resilient food producers by reviewing our curated list of list of solid balance sheet and fundamentals (198 results)

After a 66.16% jump over 90 days and a long term total return already in the triple digits, investors may be asking whether China Modern Dairy Holdings is still priced for further upside or whether most of the gain has already been earned.

Preferred Price-to-Sales of 0.8x: Is it justified?

On simple revenue multiples, China Modern Dairy Holdings trades on a P/S of 0.8x, which points to a richer valuation than both its Hong Kong food peers and the wider local industry even after the recent rally.

P/S compares the market value of the equity to its annual sales and is often used for groups that are loss making or have volatile earnings. For a producer like China Modern Dairy Holdings, where net income is currently negative and losses have widened over the past five years, this kind of top line based gauge tends to get more attention than P/E.

There is a tension in the data. The stock is described as expensive versus the Hong Kong Food industry average P/S of 0.7x and a peer average of 0.6x, which signals investors are paying a premium per dollar of revenue. Yet the same framework suggests the shares are good value relative to an estimated fair P/S of 0.9x, a level the market could potentially move toward if sentiment around the raw milk and integrated dairy farming operations stays constructive.

Explore the SWS fair ratio for China Modern Dairy Holdings.

Result: Price-to-sales of 0.8x (ABOUT RIGHT)

Still, the recent share price strength around China Modern Dairy Holdings leaves little margin for error if raw milk pricing weakens or net losses increase further.

Find out about the key risks to this China Modern Dairy Holdings narrative.

Another view on China Modern Dairy Holdings valuation

The P/S of 0.8x paints China Modern Dairy Holdings as only slightly above its 0.7x industry and 0.6x peer levels. Our DCF model sends a very different signal, with an estimated future cash flow value of HK$14.79 against a share price of about HK$1.65, which implies a very large gap. That kind of difference raises a simple question: which lens do you trust more for a business that is still loss making today?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out China Modern Dairy Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 179 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Sentiment around China Modern Dairy Holdings is clearly mixed. Move quickly, review the underlying data, and decide where you stand after reading the 3 key rewards

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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