Sterlite Technologies Limited (NSEI:STRTECH), a communications equipment company based in India, saw a significant share price rise of over 20% in the past couple of months on the NSEI. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on Sterlite Technologies’s outlook and valuation to see if the opportunity still exists. Check out our latest analysis for Sterlite Technologies
What’s the opportunity in Sterlite Technologies?
According to my relative valuation model, the stock is currently overvalued. 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 56.77x is currently well-above the industry average of 28.27x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Sterlite Technologies’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from Sterlite Technologies?
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 more than double over the next couple of years, the future seems bright for Sterlite Technologies. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in Sterlite Technologies’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe Sterlite Technologies 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 Sterlite Technologies for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for Sterlite Technologies, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.