CARE Ratings Limited (NSEI:CARERATING), a capital markets company based in India, received a lot of attention from a substantial price movement on the NSEI in the over the last few months, increasing to ₹1529.95 at one point, and dropping to the lows of ₹1321.4. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether CARE Ratings’s current trading price of ₹1349.45 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at CARE Ratings’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View our latest analysis for CARE Ratings
What’s the opportunity in CARE Ratings?
According to my relative valuation model, the stock seems to be currently fairly priced. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 27.45x is currently trading slightly below its industry peers’ ratio of 28.23x, which means if you buy CARE Ratings today, you’d be paying a reasonable price for it. And if you believe that CARE Ratings should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. Furthermore, CARE Ratings’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What kind of growth will CARE Ratings generate?
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. CARE Ratings’s earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? CARE Ratings’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at CARE Ratings? Will you have enough confidence to invest in the company should the price drop below its fair value?