At ₹1,027, Is Cummins India Limited (NSE:CUMMINSIND) Worth Looking At Closely?

While Cummins India Limited (NSE:CUMMINSIND) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% in the past couple of months on the NSEI. As a ₹285b market cap stock, it seems odd Cummins India 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 take a look at Cummins India’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Cummins India

Is Cummins India still cheap?

Cummins India 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. 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 32.12x is currently well-above the industry average of 23.53x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, Cummins India’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

Can we expect growth from Cummins India?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With revenues expected to grow by a double-digit 14% over the next couple of years, the outlook is positive for Cummins India. 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? It seems like the market has well and truly priced in CUMMINSIND’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 CUMMINSIND 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 tabs on CUMMINSIND for some time, 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 optimistic prospect is encouraging for CUMMINSIND, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Cummins India, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Cummins India you should know about.

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

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

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.