PTC India Limited (NSE:PTC), 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. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at India’s outlook and value based on the most recent financial data to see if the opportunity still exists.
See our latest analysis for India
Is India still cheap?
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 6.22x is currently trading slightly below its industry peers’ ratio of 9.27x, which means if you buy India today, you’d be paying a decent price for it. And if you believe India should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, it seems like India’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.
Can we expect decent returns from India?
What kind of returns can we expect from India in the future? It’s one thing to get a stock at a low price, but the quality of the company is even more important, as its stock may be cheap or expensive for a reason. 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. India is expected to return 10% of your investment in the next couple of years if you buy the stock today. This is a relatively good return on your investment which builds up the case for owning the stock.
What this means for you:
Are you a shareholder? PTC’s optimistic future return 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 track record of the company’s management team. Has anything significant changed since the last time you examined PTC? 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 an eye on PTC for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for PTC, which means it’s worth diving deeper into other factors such as the track record of its management team, in order to take advantage of the next price drop.
If you'd like to know more about India as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 2 warning signs for India you should be mindful of and 1 of these is concerning.
If you are no longer interested in India, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
When trading India or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
New: Manage All Your Stock Portfolios in One Place
We've created the ultimate portfolio companion for stock investors, and it's free.
• Connect an unlimited number of Portfolios and see your total in one currency
• Be alerted to new Warning Signs or Risks via email or mobile
• Track the Fair Value of your stocks
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
About NSEI:PTC
PTC India
Engages in the trading of power in India, Nepal, Bhutan, and Bangladesh.
Excellent balance sheet established dividend payer.
