Cholamandalam Investment and Finance Company Limited (NSEI:CHOLAFIN) is considered a high growth stock. However its last closing price of ₹1543.35 left investors wondering whether this growth has already been factored into the share price. Let’s look into this by assessing CHOLAFIN's expected growth over the next few years. See our latest analysis for Cholamandalam Investment and Finance
Should you get excited about CHOLAFIN's future?Cholamandalam Investment and Finance's extremely high growth potential in the near future is attracting investors. The consensus forecast from 13 analysts is extremely positive with earnings per share estimated to surge from current levels of ₹58.029 to ₹102.574 over the next three years. On average, this leads to a growth rate of 17.89% each year, which signals a market-beating outlook in the upcoming years.
Is CHOLAFIN's share price justified by its earnings growth?
As the legendary value investor Ben Graham once said, “Price is what you pay, value is what you get.” Cholamandalam Investment and Finance is trading at price-to-earnings (PE) ratio of 26.61x, which tells us the stock is undervalued based on its latest annual earnings update compared to the consumer finance average of 28.29x , and overvalued compared to the IN market average ratio of 24.92x .
We already know that CHOLAFIN appears to be undervalued based on its PE ratio, compared to the industry average. However, to be able to properly assess the value of a high-growth stock such as Cholamandalam Investment and Finance, 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 26.61x and expected year-on-year earnings growth of 17.89% give Cholamandalam Investment and Finance a higher PEG ratio of 1.49x. This means that, when we account for Cholamandalam Investment and Finance's growth, the stock can be viewed as slightly overvalued , based on its fundamentals.
What this means for you:
CHOLAFIN'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 highly recommend you to complete your research by taking a look at the following:
- Financial Health: Is CHOLAFIN’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 CHOLAFIN 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 CHOLAFIN'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.
Valuation is complex, but we're helping make it simple.
Find out whether Cholamandalam Investment and Finance is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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.