CESC Limited (NSE:CESC), which is in the electric utilities business, and is based in India, received a lot of attention from a substantial price movement on the NSEI over the last few months, increasing to ₹870.4 at one point, and dropping to the lows of ₹653.7. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether CESC’s current trading price of ₹689 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 CESC’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

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What is CESC worth?

According to my relative valuation model, the stock seems to be currently fairly priced. 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 CESC’s ratio of 11.04x is trading slightly below its industry peers’ ratio of 11.19x, which means if you buy CESC today, you’d be paying a reasonable price for it. And if you believe CESC should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. In addition to this, it seems like CESC’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will CESC generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. CESC’s earnings over the next few years are expected to increase by 52%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? CESC’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 CESC? Will you have enough conviction to buy should the price fluctuate below the true value?

Are you a potential investor? If you’ve been keeping tabs on CESC, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for CESC, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on CESC. You can find everything you need to know about CESC in the latest infographic research report. If you are no longer interested in CESC, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.