Is Tata Chemicals Limited (NSE:TATACHEM) Potentially Undervalued?

Tata Chemicals Limited (NSE:TATACHEM), is not the largest company out there, but it saw a decent share price growth in the teens level on the NSEI over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s take a look at Tata Chemicals’s outlook and value based on the most recent financial data to see if the opportunity still exists.

View our latest analysis for Tata Chemicals

Is Tata Chemicals Still Cheap?

Great news for investors – Tata 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 12.21x is currently well-below the industry average of 27.57x, meaning that it is trading at a cheaper price relative to its peers. Another thing to keep in mind is that Tata 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 Tata 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 -6.1% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Tata Chemicals. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although TATACHEM is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to TATACHEM, 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 TATACHEM for some time, 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 Tata Chemicals as a business, it's important to be aware of any risks it's facing. You'd be interested to know, that we found 1 warning sign for Tata Chemicals and you'll want to know about it.

If you are no longer interested in Tata 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.