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Shakti Pumps (India) Limited (NSE:SHAKTIPUMP), which is in the machinery business, and is based in India, saw a decent share price growth in the teens level on the NSEI over the last few months. 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 Shakti Pumps (India)’s outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for Shakti Pumps (India)
Is Shakti Pumps (India) still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 20.13x is currently trading slightly above its industry peers’ ratio of 18.25x, which means if you buy Shakti Pumps (India) today, you’d be paying a relatively reasonable price for it. And if you believe Shakti Pumps (India) should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Shakti Pumps (India)’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What does the future of Shakti Pumps (India) look like?
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. 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 revenues expected to grow by a double-digit 20% in the upcoming year, the outlook is positive for Shakti Pumps (India). If the level of expenses is able to be maintained, 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? SHAKTIPUMP’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 track record of its management team. Have these factors changed since the last time you looked at SHAKTIPUMP? Will you have enough confidence to invest in the company should the price drop below its fair value?