Is Dhampur Sugar Mills Limited (NSE:DHAMPURSUG) Potentially Undervalued?

Dhampur Sugar Mills Limited (NSE:DHAMPURSUG), is not the largest company out there, but it received a lot of attention from a substantial price increase on the NSEI over the last few months. 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 take a look at Dhampur Sugar Mills’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Dhampur Sugar Mills

Is Dhampur Sugar Mills still cheap?

Great news for investors – Dhampur Sugar Mills is still trading at a fairly cheap price according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Dhampur Sugar Mills’s ratio of 4.87x is below its peer average of 15x, which indicates the stock is trading at a lower price compared to the Food industry. However, given that Dhampur Sugar Mills’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Dhampur Sugar Mills?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 28% over the next couple of years, the future seems bright for Dhampur Sugar Mills. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? Since DHAMPURSUG is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. With a positive profit outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on DHAMPURSUG for a while, now might be the time to make a leap. Its buoyant future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy DHAMPURSUG. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed investment decision.

So while earnings quality is important, it's equally important to consider the risks facing Dhampur Sugar Mills at this point in time. In terms of investment risks, we've identified 3 warning signs with Dhampur Sugar Mills, and understanding them should be part of your investment process.

If you are no longer interested in Dhampur Sugar Mills, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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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