Is Now The Time To Look At Buying Gujarat State Fertilizers & Chemicals Limited (NSE:GSFC)?

By
Simply Wall St
Published
September 27, 2021
NSEI:GSFC
Source: Shutterstock

Gujarat State Fertilizers & Chemicals Limited (NSE:GSFC), 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 examine Gujarat State Fertilizers & Chemicals’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out 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 8.87x is below its peer average of 19.16x, which indicates the stock is trading at a lower price compared to the Chemicals industry. However, given that Gujarat State Fertilizers & Chemicals’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.

What kind of growth will Gujarat State Fertilizers & Chemicals generate?

earnings-and-revenue-growth
NSEI:GSFC Earnings and Revenue Growth September 28th 2021

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 -3.4% expected next year, 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 negative profit outlook does bring on some uncertainty, which equates to higher 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 tabs on GSFC for some time, but hesitant on making the leap, I recommend you research further 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.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Gujarat State Fertilizers & Chemicals.

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.

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.

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Simply Wall St

Simply Wall St is focused on providing unbiased, high-quality research coverage on every listed company in the world. Our research team consists of data scientists and multiple equity analysts with over two decades worth of financial markets experience between them.