Why RHI Magnesita India Limited (NSE:RHIM) Could Be Worth Watching

RHI Magnesita India Limited (NSE:RHIM), might not be a large cap stock, but it led the NSEI gainers with a relatively large price hike in the past couple of weeks. 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 RHI Magnesita India’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out the opportunities and risks within the IN Basic Materials industry.

What Is RHI Magnesita India Worth?

RHI Magnesita India appears to be expensive according to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and 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 RHI Magnesita India’s ratio of 37.61x is above its peer average of 24.28x, which suggests the stock is trading at a higher price compared to the Basic Materials industry. Furthermore, RHI Magnesita India’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

Can we expect growth from RHI Magnesita India?

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 a double-digit 18% in the upcoming year, the short-term outlook is positive for RHI Magnesita India. 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? RHIM’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 RHIM 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 tabs on RHIM for some time, 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 positive outlook is encouraging for RHIM, 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 RHI Magnesita India, you'd also look into what risks it is currently facing. For example, RHI Magnesita India has 2 warning signs (and 1 which is significant) we think you should know about.

If you are no longer interested in RHI Magnesita India, 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.