Is It Time To Consider Buying Gujarat State Fertilizers & Chemicals Limited (NSE:GSFC)?

While Gujarat State Fertilizers & Chemicals Limited (NSE:GSFC) might not be the most widely known stock at the moment, 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? Today I will analyse the most recent data on Gujarat State Fertilizers & Chemicals’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Gujarat State Fertilizers & Chemicals

What's the opportunity in Gujarat State Fertilizers & Chemicals?

Great news for investors – Gujarat State Fertilizers & 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. 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 Gujarat State Fertilizers & Chemicals’s ratio of 8.57x is below its peer average of 18.45x, which indicates the stock is trading at a lower price compared to the Chemicals industry. Another thing to keep in mind is that Gujarat State Fertilizers & Chemicals’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 its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

What does the future of Gujarat State Fertilizers & Chemicals look like?

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 negative profit growth of -17% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Gujarat State Fertilizers & Chemicals. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? Although GSFC is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to GSFC, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on GSFC for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you'd like to know more about Gujarat State Fertilizers & Chemicals as a business, it's important to be aware of any risks it's facing. For example, Gujarat State Fertilizers & Chemicals has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If you are no longer interested in Gujarat State Fertilizers & Chemicals, 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.