Is It Time To Consider Buying Chambal Fertilisers and Chemicals Limited (NSE:CHAMBLFERT)?

While Chambal Fertilisers and Chemicals Limited (NSE:CHAMBLFERT) might not be the most widely known stock at the moment, it saw a double-digit share price rise of over 10% 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 take a look at Chambal Fertilisers and Chemicals’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Chambal Fertilisers and Chemicals

What's the opportunity in Chambal Fertilisers and Chemicals?

Great news for investors – Chambal Fertilisers and Chemicals 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. 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 8.35x is currently well-below the industry average of 18.59x, meaning that it is trading at a cheaper price relative to its peers. Although, there may be another chance to buy again in the future. This is because Chambal Fertilisers and Chemicals’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Chambal Fertilisers and Chemicals 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. 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. However, with a relatively muted profit growth of 4.0% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Chambal Fertilisers and Chemicals, at least in the short term.

What this means for you:

Are you a shareholder? Even though growth is relatively muted, since CHAMBLFERT is currently trading below the industry PE ratio, it may be a great time to accumulate more of your holdings in the stock. However, there are also other factors such as financial health to consider, which could explain the current price multiple.

Are you a potential investor? If you’ve been keeping an eye on CHAMBLFERT for a while, now might be the time to enter the stock. Its future profit outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy CHAMBLFERT. 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 Chambal Fertilisers and Chemicals at this point in time. Case in point: We've spotted 2 warning signs for Chambal Fertilisers and Chemicals you should be mindful of and 1 of them is concerning.

If you are no longer interested in Chambal Fertilisers and Chemicals, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.