What Does Graphite India Limited's (NSE:GRAPHITE) Share Price Indicate?

Graphite India Limited (NSE:GRAPHITE), is not the largest company out there, but it led the NSEI gainers with a relatively large price hike in the past couple of weeks. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? 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

Is Graphite India Still Cheap?

Graphite 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. 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 Graphite India’s ratio of 69.72x is above its peer average of 35.66x, which suggests the stock is trading at a higher price compared to the Electrical industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. 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. With profit expected to more than double over the next couple of years, the future seems bright for Graphite India. 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? GRAPHITE’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe GRAPHITE 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 GRAPHITE 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 GRAPHITE, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. While conducting our analysis, we found that Graphite India has 2 warning signs and it would be unwise to ignore them.

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.