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JBM Auto Limited (NSE:JBMA), which is in the auto components business, and is based in India, received a lot of attention from a substantial price movement on the NSEI over the last few months, increasing to ₹315.6 at one point, and dropping to the lows of ₹258. 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 JBM Auto’s current trading price of ₹258 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 JBM Auto’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is JBM Auto worth?The stock seems fairly valued at the moment according to my relative valuation model. 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 JBM Auto’s ratio of 13.83x is trading slightly below its industry peers’ ratio of 15.77x, which means if you buy JBM Auto today, you’d be paying a reasonable price for it. And if you believe that JBM Auto should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. In addition to this, it seems like JBM Auto’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will JBM Auto 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. 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 profit expected to grow by a double-digit 20% in the upcoming year, the short-term outlook is positive for JBM Auto. 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? It seems like the market has already priced in JBMA’s positive outlook, 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 JBMA? 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 JBMA, 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 JBMA, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on JBM Auto. You can find everything you need to know about JBM Auto in the latest infographic research report. If you are no longer interested in JBM Auto, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.