Is Amara Raja Energy & Mobility Limited (NSE:ARE&M) Potentially Undervalued?

Amara Raja Energy & Mobility Limited (NSE:ARE&M), is not the largest company out there, but it led the NSEI gainers with a relatively large price hike in the past couple of weeks. The company is inching closer to its yearly highs following the recent share price climb. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Amara Raja Energy & Mobility’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Amara Raja Energy & Mobility

Is Amara Raja Energy & Mobility Still Cheap?

Good news, investors! Amara Raja Energy & Mobility is still a bargain right now according to our price multiple model, which compares the company's price-to-earnings ratio to the industry average. 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 Amara Raja Energy & Mobility’s ratio of 25.5x is below its peer average of 43.59x, which indicates the stock is trading at a lower price compared to the Electrical industry. Another thing to keep in mind is that Amara Raja Energy & Mobility’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

What kind of growth will Amara Raja Energy & Mobility generate?

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. Amara Raja Energy & Mobility's earnings over the next few years are expected to increase by 39%, 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? Since ARE&M is currently below the industry PE ratio, it may be a great time to increase your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on ARE&M for a while, now might be the time to make a leap. Its prosperous future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy ARE&M. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed investment decision.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. You'd be interested to know, that we found 2 warning signs for Amara Raja Energy & Mobility and you'll want to know about these.

If you are no longer interested in Amara Raja Energy & Mobility, 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.