At ₹402, Is Praj Industries Limited (NSE:PRAJIND) Worth Looking At Closely?

By
Simply Wall St
Published
January 15, 2022
NSEI:PRAJIND
Source: Shutterstock

Praj Industries Limited (NSE:PRAJIND), is not the largest company out there, but it received a lot of attention from a substantial price increase on the NSEI over the last few months. Less-covered, small caps tend to present 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? Today I will analyse the most recent data on Praj Industries’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Praj Industries

Is Praj Industries still cheap?

Praj Industries 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. 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 54.35x is currently well-above the industry average of 18.73x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, Praj Industries’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What does the future of Praj Industries look like?

earnings-and-revenue-growth
NSEI:PRAJIND Earnings and Revenue Growth January 15th 2022

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. In the upcoming year, Praj Industries' earnings are expected to increase by 53%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in PRAJIND’s positive outlook, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe PRAJIND 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 PRAJIND 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 PRAJIND, which means it’s worth diving deeper into other factors 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. While conducting our analysis, we found that Praj Industries has 2 warning signs and it would be unwise to ignore these.

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

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