Vanke: good stock at bubble price?

Stock Price
Shares of Vanke (sina, Google Finance) has gained more than 200% YTD, but it is taking a hit lately. A while ago I read these two interesting articles (21cbh, sina) about the valuation of Vanke share. The key question is whether it is over priced, considering its growth potential. Of course no one can predict the growth. At the beginning of 2007, has anyone predicted the housing price in Shanghai would go up 30% to 50% this year? I know I did not…

Housing Price
Vanke chairman Wang Shi said the Chinese housing market is at its turning point now. I don’t know whether the Chinese housing market is peaking out or not. In the following I used its monthly sales data and tried to calculate the average price in last 7 months. The ave price went from 7,634 Yuan per sqm in May to 10,393 Yuan per sqm, a 36% gain. From May 31 to Nov 30 its stock went from 19.41 Yuan to 31.55 Yuan, a 63% gain.

Compare Vanke with Toll Brothers

Vanke is the No. 1 home builder in China. Toll Brothers is a US luxury home builder. Comparing the profitability of those two are not really comparing apple to apple. But, the buyers of Vanke homes in China are mostly middle class, or in other words, their relative affulence level in China is about same the US buyers of Toll homes. Anyway here goes the data from Reuters (via Google Finance). I can see the following from the data:

1) Vanke is more profitable then Toll, because real estate is a long term growth industry in China. This is from net profit margine and operating margin.

2) Margin for both companies are declining, more so for TOL than Vanke. It’s understandable for TOL because of the weak US housing market. For Vanke it could be two things: increasing competition; sacrefying profitability for growth.