At ₹334, Is It Time To Put The Indian Hume Pipe Company Limited (NSE:INDIANHUME) On Your Watch List?

The Indian Hume Pipe Company Limited (NSE:INDIANHUME), might not be a large cap stock, but it saw a significant share price rise of 42% in the past couple of months on the NSEI. The company is now trading at yearly-high levels following the recent surge in its share price. 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 Indian Hume Pipe’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Indian Hume Pipe

What's The Opportunity In Indian Hume Pipe?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’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 22.66x is currently trading slightly below its industry peers’ ratio of 27.51x, which means if you buy Indian Hume Pipe today, you’d be paying a reasonable price for it. And if you believe that Indian Hume Pipe should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like Indian Hume Pipe’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Indian Hume Pipe 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 grow by 38% over the next couple of years, the future seems bright for Indian Hume Pipe. 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? INDIANHUME’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at INDIANHUME? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on INDIANHUME, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for INDIANHUME, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To help with this, we've discovered 4 warning signs (1 is concerning!) that you ought to be aware of before buying any shares in Indian Hume Pipe.

If you are no longer interested in Indian Hume Pipe, 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.