Why Bharat Heavy Electricals Limited (NSE:BHEL) Could Be Worth Watching

Bharat Heavy Electricals Limited (NSE:BHEL), which is in the electrical business, and is based in India, saw significant share price movement during recent months on the NSEI, rising to highs of ₹58.90 and falling to the lows of ₹41.85. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Bharat Heavy Electricals's current trading price of ₹43.45 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Bharat Heavy Electricals’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Bharat Heavy Electricals

What is Bharat Heavy Electricals worth?

The stock seems fairly valued at the moment according to my relative valuation model. 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 19.14x is currently trading slightly above its industry peers’ ratio of 14.33x, which means if you buy Bharat Heavy Electricals today, you’d be paying a relatively fair price for it. And if you believe that Bharat Heavy Electricals should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. In addition to this, it seems like Bharat Heavy Electricals’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Bharat Heavy Electricals?

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. With revenues expected to grow by a double-digit 15% over the next couple of years, the outlook is positive for Bharat Heavy Electricals. If the level of expenses is able to be maintained, it looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? BHEL’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at BHEL? Will you have enough conviction to buy should the price fluctuate below the true value?

Are you a potential investor? If you’ve been keeping an eye on BHEL, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for BHEL, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Bharat Heavy Electricals. You can find everything you need to know about Bharat Heavy Electricals in the latest infographic research report. If you are no longer interested in Bharat Heavy Electricals, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

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