Is Now An Opportune Moment To Examine Graphite India Limited (NSE:GRAPHITE)?

Graphite India Limited (NSE:GRAPHITE), might not be a large cap stock, but it saw a decent share price growth of 20% on the NSEI over the last few months. The recent share price gains has brought the company back closer to its yearly peak. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s examine Graphite India’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Graphite India

What's The Opportunity In Graphite India?

Good news, investors! Graphite India is still a bargain right now according to our price multiple model, which compares 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 Graphite India’s ratio of 14.45x is below its peer average of 32.78x, which indicates the stock is trading at a lower price compared to the Electrical industry. However, given that Graphite India’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Graphite India generate?

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. However, with a negative profit growth of -4.0% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Graphite India. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although GRAPHITE is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. We recommend you think about whether you want to increase your portfolio exposure to GRAPHITE, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on GRAPHITE for a while, but hesitant on making the leap, we recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Graphite India at this point in time. For example, we've found that Graphite India has 3 warning signs (1 can't be ignored!) that deserve your attention before going any further with your analysis.

If you are no longer interested in Graphite India, 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.