Is There Now An Opportunity In Mahindra & Mahindra Limited (NSE:M&M)?

Today we're going to take a look at the well-established Mahindra & Mahindra Limited (NSE:M&M). The company's stock saw a double-digit share price rise of over 10% in the past couple of months on the NSEI. 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? Let’s examine Mahindra & Mahindra’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Mahindra & Mahindra

What's the opportunity in Mahindra & Mahindra?

Great news for investors – Mahindra & Mahindra is still trading at a fairly cheap price 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 16.49x is currently well-below the industry average of 36.73x, meaning that it is trading at a cheaper price relative to its peers. However, 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 another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Mahindra & Mahindra?

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. However, with a negative profit growth of -1.3% expected next year, near-term growth certainly doesn’t appear to be a driver for a buy decision for Mahindra & Mahindra. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although M&M is currently trading below the industry PE ratio, the negative profit outlook does bring on some uncertainty, which equates to higher risk. Consider whether you want to increase your portfolio exposure to M&M, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on M&M for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you'd like to know more about Mahindra & Mahindra as a business, it's important to be aware of any risks it's facing. For example, Mahindra & Mahindra has 3 warning signs (and 1 which shouldn't be ignored) 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.