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Shakti Pumps (India) Limited (NSE:SHAKTIPUMP), which is in the machinery business, and is based in India, saw significant share price movement during recent months on the NSEI, rising to highs of ₹413 and falling to the lows of ₹256. 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 Shakti Pumps (India)'s current trading price of ₹259 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 Shakti Pumps (India)’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
See our latest analysis for Shakti Pumps (India)
What's the opportunity in Shakti Pumps (India)?
According to my relative valuation model, the stock seems to be currently fairly priced. 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 11.64x is currently trading slightly below its industry peers’ ratio of 12.63x, which means if you buy Shakti Pumps (India) today, you’d be paying a reasonable price for it. And if you believe that Shakti Pumps (India) should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. 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?
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. 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?