Is There Now An Opportunity In Ashoka Buildcon Limited (NSE:ASHOKA)?

Ashoka Buildcon Limited (NSE:ASHOKA), is not the largest company out there, but it received a lot of attention from a substantial price increase on the NSEI over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Ashoka Buildcon’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Ashoka Buildcon

What is Ashoka Buildcon worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. 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 12.21x is currently trading slightly above its industry peers’ ratio of 10.61x, which means if you buy Ashoka Buildcon today, you’d be paying a relatively reasonable price for it. And if you believe Ashoka Buildcon should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Ashoka Buildcon’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Ashoka Buildcon 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. Though in the case of Ashoka Buildcon, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Currently, ASHOKA appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on ASHOKA, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ASHOKA for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on ASHOKA should the price fluctuate below the industry PE ratio.

If you want to dive deeper into Ashoka Buildcon, you'd also look into what risks it is currently facing. To that end, you should learn about the 2 warning signs we've spotted with Ashoka Buildcon (including 1 which can't be ignored).

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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