Is Blue Star Limited (NSE:BLUESTARCO) Potentially Undervalued?

By
Simply Wall St
Published
September 27, 2021
NSEI:BLUESTARCO
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Blue Star Limited (NSE:BLUESTARCO), is not the largest company out there, but it saw a decent share price growth in the teens level on the NSEI over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on Blue Star’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Blue Star

What is Blue Star worth?

Blue Star appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Blue Star’s ratio of 65.3x is above its peer average of 33.18x, which suggests the stock is trading at a higher price compared to the Building industry. But, is there another opportunity to buy low in the future? Since Blue Star’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Blue Star look like?

earnings-and-revenue-growth
NSEI:BLUESTARCO Earnings and Revenue Growth September 28th 2021

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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 profit expected to more than double over the next couple of years, the future seems bright for Blue Star. 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? It seems like the market has well and truly priced in BLUESTARCO’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe BLUESTARCO should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio 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 an eye on BLUESTARCO for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for BLUESTARCO, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Blue Star as a business, it's important to be aware of any risks it's facing. For example, we've discovered 3 warning signs that you should run your eye over to get a better picture of Blue Star.

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

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.

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

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Simply Wall St

Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.