Is There Now An Opportunity In The Shipping Corporation of India Limited (NSE:SCI)?

While The Shipping Corporation of India Limited (NSE:SCI) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the NSEI over the last few months, increasing to ₹136 at one point, and dropping to the lows of ₹103. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Shipping Corporation of India's current trading price of ₹103 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Shipping Corporation of India’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Shipping Corporation of India

What is Shipping Corporation of India worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 5.57x is currently trading slightly below its industry peers’ ratio of 9.83x, which means if you buy Shipping Corporation of India today, you’d be paying a decent price for it. And if you believe that Shipping Corporation of India should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, Shipping Corporation of India’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

Can we expect decent returns from Shipping Corporation of India?

Valuation is only one aspect of forming your investment views on Shipping Corporation of India. Another thing to consider is whether it is actually a high-quality company. The best type of investment is always in a great company, producing robust returns at a cheap price. A way to assess stock quality is by looking how much it returns to you as the investor compared to how much you’re invested. Shipping Corporation of India is expected to return 7.7% of your investment next year if you buy the stock today. This is a pretty average return, which doesn’t significantly add much to the case for owning the stock.

What this means for you:

Are you a shareholder? SCI’s positive future returns appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at SCI? And will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on SCI for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Should the stock become an attractive buy again, you will be more informed to make a decision on SCI. Keep in mind the low future return, and whether the opportunity cost of investing in SCI versus another stock is worth it.

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. You'd be interested to know, that we found 1 warning sign for Shipping Corporation of India and you'll want to know about this.

If you are no longer interested in Shipping Corporation of India, 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.