Should You Think About Buying Tata Elxsi Limited (NSE:TATAELXSI) Now?

Tata Elxsi Limited (NSE:TATAELXSI), is not the largest company out there, but it saw a decent share price growth of 14% on the NSEI over the last few months. Shareholders may appreciate the recent price jump, but the company still has a way to go before reaching its yearly highs again. 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, could the stock still be trading at a relatively cheap price? Let’s examine Tata Elxsi’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Tata Elxsi

Is Tata Elxsi Still Cheap?

Tata Elxsi appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. We’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 55.38x is currently well-above the industry average of 41.54x, meaning that it is trading at a more expensive price relative to its peers. In addition to this, it seems like Tata Elxsi’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Tata Elxsi?

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. Tata Elxsi's earnings over the next few years are expected to increase by 45%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? TATAELXSI’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 TATAELXSI 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 TATAELXSI 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 TATAELXSI, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you'd like to know more about Tata Elxsi as a business, it's important to be aware of any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Tata Elxsi, and understanding it should be part of your investment process.

If you are no longer interested in Tata Elxsi, 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.