Should You Think About Buying Cummins India Limited (NSE:CUMMINSIND) Now?

Cummins India Limited (NSE:CUMMINSIND), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NSEI over the last few months, increasing to ₹1,047 at one point, and dropping to the lows of ₹869. 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 Cummins India's current trading price of ₹944 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 Cummins India’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Cummins India

What is Cummins India worth?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 Cummins India’s ratio of 29.81x is above its peer average of 21.1x, which suggests the stock is trading at a higher price compared to the Machinery industry. In addition to this, it seems like Cummins India’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Cummins India?

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. 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 17% 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 an eye on CUMMINSIND 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 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.