Ashok Leyland Limited (NSE:ASHOKLEY), 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 ₹393b market-cap stock, it seems odd Ashok Leyland is not more well-covered by analysts. However, this is not necessarily a bad thing given that there are less eyes on the stock to push it closer to fair value. Is there still an opportunity to buy? Let’s examine Ashok Leyland’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What is Ashok Leyland worth?
Ashok Leyland appears to be overvalued by 38% at the moment, based on my discounted cash flow valuation. The stock is currently priced at ₹135 on the market compared to my intrinsic value of ₹98.22. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Given that Ashok Leyland’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.
What does the future of Ashok Leyland 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. Ashok Leyland's revenue growth are expected to be in the teens in the upcoming year, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? ASHOKLEY’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe ASHOKLEY should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on ASHOKLEY for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for ASHOKLEY, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example, we've found that Ashok Leyland has 3 warning signs (1 is a bit concerning!) that deserve your attention before going any further with your analysis.
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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.
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