At ₹93.00, Is It Time To Put Ashoka Buildcon Limited (NSE:ASHOKA) On Your Watch List?

Ashoka Buildcon Limited (NSE:ASHOKA), might not be a large cap stock, but it saw a significant share price rise of over 20% in the past couple of months on the NSEI. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Ashoka Buildcon’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Ashoka Buildcon

What's the opportunity in Ashoka Buildcon?

The share price seems sensible at the moment 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 12.57x is currently trading slightly below its industry peers’ ratio of 14.02x, which means if you buy Ashoka Buildcon today, you’d be paying a decent price for it. And if you believe that Ashoka Buildcon should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Ashoka Buildcon’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Ashoka Buildcon look like?

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. Though in the case of Ashoka Buildcon, it is expected to deliver a highly negative earnings growth in the next few years, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Currently, ASHOKA appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on ASHOKA, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on ASHOKA for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on ASHOKA should the price fluctuate below the industry PE ratio.

If you'd like to know more about Ashoka Buildcon as a business, it's important to be aware of any risks it's facing. Every company has risks, and we've spotted 3 warning signs for Ashoka Buildcon (of which 2 are concerning!) you should know about.

If you are no longer interested in Ashoka Buildcon, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

If you decide to trade Ashoka Buildcon, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.