Why Alicon Castalloy Limited (NSE:ALICON) Could Be Worth Watching

While Alicon Castalloy Limited (NSE:ALICON) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the NSEI. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Alicon Castalloy’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Alicon Castalloy

Is Alicon Castalloy still cheap?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 Alicon Castalloy’s ratio of 44.17x is above its peer average of 22x, which suggests the stock is trading at a higher price compared to the Auto Components industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Alicon Castalloy’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.

What does the future of Alicon Castalloy look like?

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. Alicon Castalloy's earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? ALICON’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe ALICON should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 tabs on ALICON for some time, 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 optimistic prospect is encouraging for ALICON, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Alicon Castalloy, you'd also look into what risks it is currently facing. For example, we've found that Alicon Castalloy has 3 warning signs (1 is potentially serious!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Alicon Castalloy, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.