Is It Too Late To Consider Buying KNR Constructions Limited (NSE:KNRCON)?

While KNR Constructions Limited (NSE:KNRCON) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the NSEI over the last few months. 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 take a look at KNR Constructions’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for KNR Constructions

What is KNR Constructions worth?

According to my 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. I’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 15.01x is currently trading slightly below its industry peers’ ratio of 15.81x, which means if you buy KNR Constructions today, you’d be paying a decent price for it. And if you believe KNR Constructions should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, KNR Constructions’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

What kind of growth will KNR Constructions 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. 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. Though in the case of KNR Constructions, it is expected to deliver a negative earnings growth of -2.6%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? Currently, KNRCON appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on KNRCON, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on KNRCON for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on KNRCON should the price fluctuate below the industry PE ratio.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. To that end, you should learn about the 2 warning signs we've spotted with KNR Constructions (including 1 which is a bit concerning).

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This article by Simply Wall St is general in nature. 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.
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