Is Now The Time To Bet On The Automobile Sector And Precision Camshafts Limited (NSE:PRECAM)?

Precision Camshafts Limited (NSEI:PRECAM), a INR₹12.13B small-cap, operates in the automobile industry whose long product cycles and deep capital investments make planning ahead a difficult endeavour. New opportunities driving future growth in the auto sector is connected and intelligent cars, in particular, web networking, sensors and software, which is not the traditional focus for most automobile companies. Shortcomings of well-established auto companies provides an opportunity for technology firms such as Alphabet and Apple to create their own software underlying autonomous and communication capabilities of automobiles. Automobile analysts are forecasting for the entire industry, a strong double-digit growth of 15.93% in the upcoming year . Should your portfolio be overweight in the automobile sector at the moment? In this article, I’ll take you through the automobile sector growth expectations, and also determine whether Precision Camshafts is a laggard or leader relative to its automobile sector peers. Check out our latest analysis for Precision Camshafts

What’s the catalyst for Precision Camshafts’s sector growth?

NSEI:PRECAM Past Future Earnings Jan 17th 18
NSEI:PRECAM Past Future Earnings Jan 17th 18
The increasing presence of tech firms in the auto industry cannot be overlooked or discounted by OEMs. These companies will likely prove to have an immense influence on the auto sector in the coming years, mainly because their skills and the industry’s needs align perfectly – they are proficient at seamlessly connecting components to create networks valued by consumers for the information, efficiencies, and experiences they deliver. In the previous year, the industry saw growth in the teens, though still underperforming the wider Indian stock market. Precision Camshafts lags the pack with its negative growth rate of -14.25% over the past year, which indicates the company has been growing at a slower pace than its automobile peers. As the company trails the rest of the industry in terms of growth, Precision Camshafts may also be a cheaper stock relative to its peers.

Is Precision Camshafts and the sector relatively cheap?

NSEI:PRECAM PE PEG Gauge Jan 17th 18
NSEI:PRECAM PE PEG Gauge Jan 17th 18
Automobile companies are typically trading at a PE of 30x, in-line with the Indian stock market PE of 28x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 13.35% compared to the market’s 9.78%, potentially illustrative of a turnaround. On the stock-level, Precision Camshafts is trading at a lower PE ratio of 18x, making it cheaper than the average automobile stock. In terms of returns, Precision Camshafts generated 12.65% in the past year, in-line with its industry average.

What this means for you:

Are you a shareholder? Precision Camshafts has been an automobile industry laggard in the past year. This is possibly reflected in the PE ratio, with the stock trading below its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Precision Camshafts as part of your portfolio, or maybe increase your holding. If you’re bearish on the stock, now may not be the best time to sell!

Are you a potential investor? If Precision Camshafts has been on your watchlist for a while, now may be the time to dig deeper into the stock. Although the stock delivered lower growth relative to its peers, Precision Camshafts is also trading at a discount, meaning that there could be some value from a potential mispricing. However, before you make a decision on the stock, I suggest you look at Precision Camshafts’s other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.

For a deeper dive into Precision Camshafts’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other automobile stocks instead? Use our free playform to see my list of over 50 other automobile companies trading on the market.