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Bodal Chemicals Limited (NSE:BODALCHEM), which is in the chemicals business, and is based in India, saw a double-digit share price rise of over 10% in the past couple of months on the NSEI. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at Bodal Chemicals’s outlook and value based on the most recent financial data to see if the opportunity still exists.
View our latest analysis for Bodal Chemicals
What is Bodal Chemicals worth?
Great news for investors – Bodal Chemicals is still trading at a fairly cheap price. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Bodal Chemicals’s ratio of 8.88x is below its peer average of 16.09x, which suggests the stock is undervalued compared to the Chemicals industry. However, given that Bodal Chemicals’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Bodal Chemicals?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -14% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Bodal Chemicals. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Although BODALCHEM is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to BODALCHEM, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping tabs on BODALCHEM for some time, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.