Growth expectations for Central Depository Services (India) Limited (NSE:CDSL) are high, but many investors are starting to ask whether its last close at ₹268.45 can still be rationalized by the future potential. Let’s look into this by assessing CDSL’s expected growth over the next few years.
What can we expect from Central Depository Services (India) in the future?According to the analysts covering the company, the following few years should bring about good growth prospects for Central Depository Services (India). Expectations from 3 analysts are buoyant with earnings per share estimated to surge from current levels of ₹9.543 to ₹12.2 over the next three years. On average, this leads to a growth rate of 10.1% each year, which illustrates an optimistic outlook in the near term.
Is CDSL available at a good price after accounting for its growth?
Central Depository Services (India) is available at price-to-earnings ratio of 28.13x, showing us it is overvalued based on current earnings compared to the capital markets industry average of 17.15x , and overvalued compared to the IN market average ratio of 19.87x . This multiple is a median of profitable companies of 25 Capital Markets companies in IN including GFL Financials India, VCK Capital Market Services and Sharp Investments.
We understand CDSL seems to be overvalued based on its current earnings, compared to its industry peers. But, to be able to properly assess the value of a high-growth stock such as Central Depository Services (India), we must incorporate its earnings growth in our valuation. The PEG ratio is a great calculation to take account of growth in the stock’s valuation. A PE ratio of 28.13x and expected year-on-year earnings growth of 10.1% give Central Depository Services (India) a quite high PEG ratio of 2.77x. Based on this growth, Central Depository Services (India)’s stock can be considered overvalued , based on fundamental analysis.
What this means for you:
CDSL’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Financial Health: Are CDSL’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has CDSL been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of CDSL’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.