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Escorts Limited (NSE:ESCORTS), which is in the machinery business, and is based in India, received a lot of attention from a substantial price increase on the NSEI over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s examine Escorts’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for Escorts
What is Escorts worth?
Escorts appears to be overvalued by 49.28% at the moment, based on my discounted cash flow valuation. The stock is currently priced at ₹535 on the market compared to my intrinsic value of ₹358.46. This means that the buying opportunity has probably disappeared for now. Another thing to keep in mind is that Escorts’s share price is quite stable relative to the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
What kind of growth will Escorts generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 25% over the next couple of years, the future seems bright for Escorts. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? ESCORTS’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe ESCORTS should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on ESCORTS for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook is encouraging for ESCORTS, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.