Should Your Next Investment In The Capital Goods Industry Be In Sejal Glass Limited (NSE:SEZAL)?

Sejal Glass Limited (NSEI:SEZAL), a INR₹155.34M small-cap, operates in the building product industry which is relatively sensitive to changes in the business cycle. This is because the building sector is predominantly affected by shifts in the housing market, as a result of demand from construction projects. Generally, building product stocks are good buys during the early periods of economic growth due to the anticipated increase in demand. Capital goods analysts are forecasting for the entire industry, a strong double-digit growth of 18.45% in the upcoming year , and an enormous growth of 31.73% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Is the building product industry an attractive sector-play right now? In this article, I’ll take you through the sector growth expectations, and also determine whether Sejal Glass is a laggard or leader relative to its capital goods sector peers. Check out our latest analysis for Sejal Glass

What’s the catalyst for Sejal Glass's sector growth?

The building products sector seems to be mainly in the mature life cycle. Companies appear highly competitive with each other and consolidation seems to be a common theme. There are plenty of emerging trends to deal with across the board including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the past year, the industry delivered negative growth of -3.60%, underperforming the Indian market growth of 12.93%. Sejal Glass lags the pack with its sustained negative earnings over the past couple of years. The company's outlook seems uncertain, with a lack of analyst coverage, which doesn't boost our confidence in the stock. This lack of growth and transparency means Sejal Glass may be trading cheaper than its peers.

Is Sejal Glass and the sector relatively cheap?

The building products sector's PE is currently hovering around 26x, relatively similar to the rest of the Indian stock market PE of 29x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a higher 13.14% compared to the market’s 9.82%, potentially illustrative of past tailwinds. Since Sejal Glass’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Sejal Glass’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? Sejal Glass recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Sejal Glass as part of your portfolio. However, if you’re relatively concentrated in building products, you may want to value Sejal Glass based on its cash flows to determine if it is overpriced based on its current growth outlook.

Are you a potential investor? If Sejal Glass has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the building products industry. However, before you make a decision on the stock, I suggest you look at Sejal Glass’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.

For a deeper dive into Sejal Glass's stock, take a look at the company's latest free analysis report to find out more on its financial health and other fundamentals. Interested in other capital goods stocks instead? Use our free playform to see my list of over 100 other building products companies trading on the market.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.