At ₹768, Is It Time To Put Carborundum Universal Limited (NSE:CARBORUNIV) On Your Watch List?

Carborundum Universal Limited (NSE:CARBORUNIV), might not be a large cap stock, but it saw a decent share price growth in the teens level on the NSEI over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Carborundum Universal’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Carborundum Universal

What's the opportunity in Carborundum Universal?

Carborundum Universal is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison 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 Carborundum Universal’s ratio of 43.79x is above its peer average of 17.1x, which suggests the stock is trading at a higher price compared to the Chemicals industry. Another thing to keep in mind is that Carborundum Universal’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 Carborundum Universal generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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 78% over the next couple of years, the future seems bright for Carborundum Universal. 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? CARBORUNIV’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe CARBORUNIV 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 CARBORUNIV 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 optimistic prospect is encouraging for CARBORUNIV, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Carborundum Universal, you'd also look into what risks it is currently facing. For example, Carborundum Universal has 2 warning signs (and 1 which is significant) we think you should know about.

If you are no longer interested in Carborundum Universal, 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. 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. Simply Wall St has no position in any stocks mentioned.