Apollo Pipes Limited (NSE:APOLLOPIPE), which is in the building business, and is based in India, had a relatively subdued couple of weeks in terms of changes in share price, which continued to float around the range of ₹376 to ₹376. However, is this the true valuation level of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Apollo Pipes’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 Apollo Pipes
What's the opportunity in Apollo Pipes?
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 18.17x is currently trading slightly above its industry peers’ ratio of 16.59x, which means if you buy Apollo Pipes today, you’d be paying a relatively reasonable price for it. And if you believe Apollo Pipes should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Furthermore, Apollo Pipes’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What kind of growth will Apollo Pipes generate?
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 profit expected to grow by 31% over the next year, the near-term future seems bright for Apollo Pipes. 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? APOLLOPIPE’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 financial strength of the company. Have these factors changed since the last time you looked at APOLLOPIPE? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping an eye on APOLLOPIPE, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for APOLLOPIPE, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.