Central Depository Services (India) Limited (NSE:CDSL) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of ₹231.45 is based on unrealistic expectations. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.
What can we expect from Central Depository Services (India) in the future?Investors in Central Depository Services (India) have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. The consensus forecast from 3 analysts is certainly positive with earnings forecasted to rise significantly from today’s level of ₹9.854 to ₹13.405 over the next three years. This results in an annual growth rate of 13%, on average, which illustrates an optimistic outlook in the near term.
Is CDSL’s share price justified by its earnings growth?
CDSL is trading at price-to-earnings (PE) ratio of 23.49x, which suggests that Central Depository Services (India) is overvalued based on current earnings compared to the Capital Markets industry average of 17.59x , and overvalued compared to the IN market average ratio of 17.26x .
We already know that CDSL appears to be overvalued when compared to its industry average. But, to properly examine the value of a high-growth stock such as Central Depository Services (India), we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 23.49x and expected year-on-year earnings growth of 13% give Central Depository Services (India) a higher PEG ratio of 1.79x. This tells us that when we include its growth in our analysis Central Depository Services (India)’s stock can be considered a bit overvalued , based on its fundamentals.
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.