Is China Yuchai (NYSE:CYD) a good hedge for your existing portfolios?

China Yuchai is generating 0.0872% of daily returns assuming volatility of 2.7491% on return distribution over 60 days investment horizon. Although many risk-takers are getting more into industrials space, some of us are not very happy with China Yuchai's current volatility. We will evaluate if China Yuchai's current volatility will continue into February. China Yuchai's low volatility may still impact the value of the stock as we estimate it as currently undervalued. The real value, based on our analysis, is getting close to 17.70 per share.
Published over a year ago
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Reviewed by Rifka Kats

China Yuchai International has roughly 6.14 B in cash with 1.42 B of positive cash flow from operations. This results in cash-per-share (CPS) ratio of 150.34, which can makes it an attractive takeover target, given it will continue generating positive cash flow.
Volatility is a rate at which the price of China Yuchai or any other equity instrument increases or decreases for a given set of returns. It is measured by calculating the standard deviation of the annualized returns over a given period of time and shows the range to which the price of China Yuchai may increase or decrease. In other words, similar to China's beta indicator, it measures the risk of China Yuchai and helps estimate the fluctuations that may happen in a short period of time. So if prices of China Yuchai fluctuate rapidly in a short time span, it is termed to have high volatility, and if it swings slowly in a more extended period, it is understood to have low volatility. Please read more on our technical analysis page.

How important is China Yuchai's Liquidity

China Yuchai financial leverage refers to using borrowed capital as a funding source to finance China Yuchai International ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. China Yuchai financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to China Yuchai's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of China Yuchai's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between China Yuchai's total debt and its cash.

Details

The latest indifference towards the small price fluctuations of China Yuchai Interna could raise concerns from shareholders as the firm it trading at a share price of 14.19 on 12,514 in volume. The company executives did not add any value to China Yuchai investors in December. However, most investors can still diversify their portfolios with China Yuchai Interna to hedge their inherited risk against high-volatility market scenarios. The stock standard deviation of daily returns for 90 days investing horizon is currently 2.75. The current volatility is consistent with the ongoing market swings in December 2021 as well as with China Yuchai unsystematic, company-specific events.
 2019 2020 2021 2022 (projected)
Cost of Revenue14.91 B17.39 B20 B17.95 B
Consolidated Income860.7 M779.33 M701.39 M747.48 M

China Yuchai is projected to stay under $14.47 in February

Standard deviation is down to 2.69. It may indicate a possible volatility dip. China Yuchai International currently demonstrates below-average downside deviation. It has Information Ratio of 0.01 and Jensen Alpha of 0.05. However, we advise investors to further question China Yuchai International expected returns to ensure all indicators are consistent with the current outlook about its relatively low value at risk. Understanding different market volatility trends often help investors to time the market. Properly using volatility indicators enable traders to measure China Yuchai's stock risk against market volatility during both bullying and bearish trends. The higher level of volatility that comes with bear markets can directly impact China Yuchai's stock price while adding stress to investors as they watch their shares' value plummet. This usually forces investors to rebalance their portfolios by buying different stocks as prices fall.

China Yuchai Implied Volatility

China Yuchai's implied volatility exposes the market's sentiment of China Yuchai International stock's possible movements over time. However, it does not forecast the overall direction of its price. In a nutshell, if China Yuchai's implied volatility is high, the market thinks the stock has potential for high price swings in either direction. On the other hand, the low implied volatility suggests that China Yuchai stock will not fluctuate a lot when China Yuchai's options are near their expiration.

Our Takeaway on China Yuchai Investment

Although many other companies under the specialty industrial machinery industry are still a bit expensive, China Yuchai may offer a potential longer-term growth to shareholders. While some shareholders may not share our view we believe that the current risk-reward utility is not appealing enough to do any trading. Please use our equity advice module to run different scenarios to ensure your current risk level and investment horizon are fully reflective of your current investing preferences in regards to China Yuchai.

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Editorial Staff

This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Gabriel Shpitalnik do not own shares of China Yuchai International. Please refer to our Terms of Use for any information regarding our disclosure principles.

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