The silk railroad
Nothing should get investors more excited than when the shares of an attractive company take a tumble. Last October, for example, Guangshen Railway was highlighted as one of CAPS' top-rated Asian stocks, but as my Foolish colleague Todd Wenning noted at the time, the company's valuation seemed steep.
Well, after eight months and a nearly 50% price decline, Fools finally have the chance to jump aboard Guangshen at more reasonable, possibly even bargain, levels.
As Todd mentioned, Guangshen's price-to-earnings (P/E) ratio was nearly double that of its U.S. counterparts Burlington Northern (NYSE: BNI) and Union Pacific (NYSE: UNP). But thanks to the well-documented strength in U.S. railroad stocks, and Guangshen's weakness ever since, all three companies currently trade at roughly the same P/E. And of course, our CAPS members are just as fond of Guangshen's financials, competitive advantages, and growth opportunities today as they have been in the past.
For those unfamiliar to the Guangshen story, it is the sole railroad company operating between Guangzhou and Shenzhen in China's Pearl River Delta (a.k.a. the busiest route in the country). That description alone should at least have you thinking about the intriguing bounce-back possibilities, so here's a pair of bullish CAPS comments to help you aboard.
CAPS player NetscribeServcs likes the big picture:
The demand for railway transportation is expected to remain strong with the robust economic growth in China. The growth in rail transportation is much below the economy growth. The Chinese Government is investing approximately $12.8 billion by 2020 to expand the railway network by 35%. Tracks are being built, but at a slower pace and China is witnessing a rise in demand for rail transportation.
CAPS All-Star kamp2 touches on Guangshen's seemingly limitless growth potential:
Miles and miles of space. Millions upon millions of people. Tons upon tons of freight to transport. New frontiers wherever they need to go. Railways will get them there first and it's going to happen fast. GSH will be the road to ride in CHINA.
