While Agro Tech Foods Limited (NSE:ATFL) might not be the most widely known stock at the moment, it saw a significant share price rise of over 20% in the past couple of months on the NSEI. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Agro Tech Foods’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Check out our latest analysis for Agro Tech Foods
What's the opportunity in Agro Tech Foods?
According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. 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 42.29x is currently well-above the industry average of 14.44x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Agro Tech Foods’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.
What kind of growth will Agro Tech Foods generate?
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. Though in the case of Agro Tech Foods, it is expected to deliver a relatively unexciting earnings growth of 6.5%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for Agro Tech Foods, at least in the near term.
What this means for you:
Are you a shareholder? ATFL’s future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe ATFL 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 an eye on ATFL for a while, 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 positive growth outlook may mean 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 Agro Tech Foods has 1 warning sign and it would be unwise to ignore this.
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This article by Simply Wall St is general in nature. 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. Simply Wall St has no position in any stocks mentioned.
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About NSEI:ATFL
Agro Tech Foods
Manufactures, markets, trades in, and sells food products and edible oils in India and internationally.
Adequate balance sheet average dividend payer.
