Is Elecon Engineering Company Limited (NSE:ELECON) Potentially Undervalued?

Elecon Engineering Company Limited (NSE:ELECON), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NSEI over the last few months, increasing to ₹731 at one point, and dropping to the lows of ₹542. 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 Elecon Engineering's current trading price of ₹585 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Elecon Engineering’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 Elecon Engineering

What Is Elecon Engineering Worth?

Great news for investors – Elecon Engineering is still trading at a fairly cheap price according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. we find that Elecon Engineering’s ratio of 37.01x is below its peer average of 47.68x, which indicates the stock is trading at a lower price compared to the Electrical industry. Although, there may be another chance to buy again in the future. This is because Elecon Engineering’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from Elecon Engineering?

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 profit expected to grow by 30% over the next couple of years, the future seems bright for Elecon Engineering. 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? Since ELECON is currently trading below the industry PE ratio, it may be a great time to increase your holdings in the stock. With an optimistic profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as financial health to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on ELECON for a while, now might be the time to make a leap. Its buoyant future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy ELECON. But before you make any investment decisions, consider other factors such as the track record of its management team, in order to make a well-informed investment decision.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 1 warning sign for Elecon Engineering and we think they deserve your attention.

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

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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.