Is Birla Corporation Limited’s (NSE:BIRLACORPN) Growth Strong Enough To Justify Its May Share Price?

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Growth expectations for Birla Corporation Limited (NSE:BIRLACORPN) are high, but many investors are starting to ask whether its last close at ₹546.7 can still be rationalized by the future potential. Below I will be talking through a basic metric which will help answer this question.

View our latest analysis for Birla

Where’s the growth?

Birla’s growth potential is very attractive. The consensus forecast from 4 analysts is extremely positive with earnings per share estimated to surge from current levels of ₹33.21 to ₹48.994 over the next three years. On average, this leads to a growth rate of 15% each year, which indicates an exceedlingly positive future in the near term.

Can BIRLACORPN’s share price be justified by its earnings growth?

Birla is trading at quite low price-to-earnings (PE) ratio of 16.49x. This tells us the stock is overvalued compared to the IN market average ratio of 15.27x , and undervalued based on its latest annual earnings update compared to the Basic Materials average of 18.68x .

NSEI:BIRLACORPN Price Estimation Relative to Market, May 12th 2019
NSEI:BIRLACORPN Price Estimation Relative to Market, May 12th 2019

Birla’s price-to-earnings ratio stands at 16.49x, which is low, relative to the industry average. This already suggests that the stock could be undervalued. However, seeing as Birla is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 16.49x and expected year-on-year earnings growth of 15% give Birla an acceptable PEG ratio of 1.07x. So, when we include the growth factor in our analysis, Birla appears slightly overvalued , based on fundamental analysis.

What this means for you:

BIRLACORPN’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:

  1. Financial Health: Are BIRLACORPN’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.
  2. Past Track Record: Has BIRLACORPN 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 BIRLACORPN’s historicals for more clarity.
  3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.