Is Mahindra & Mahindra Limited (NSE:M&M) Potentially Undervalued?

Today we're going to take a look at the well-established Mahindra & Mahindra Limited (NSE:M&M). The company's stock saw a decent share price growth of 13% on the NSEI over the last few months. The recent share price gains has brought the company back closer to its yearly peak. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today we will analyse the most recent data on Mahindra & Mahindra’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Mahindra & Mahindra

Is Mahindra & Mahindra Still Cheap?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Mahindra & Mahindra’s ratio of 28.32x is trading slightly below its industry peers’ ratio of 30.4x, which means if you buy Mahindra & Mahindra today, you’d be paying a reasonable price for it. And if you believe Mahindra & Mahindra should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Mahindra & Mahindra’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 an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Mahindra & Mahindra?

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. Mahindra & Mahindra's earnings over the next few years are expected to increase by 40%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in M&M’s positive outlook, with shares trading around industry price multiples. 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 M&M? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on M&M, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for M&M, 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.

If you want to dive deeper into Mahindra & Mahindra, you'd also look into what risks it is currently facing. For example, Mahindra & Mahindra has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you are no longer interested in Mahindra & Mahindra, 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.