What Is The Tata Power Company Limited's (NSE:TATAPOWER) Share Price Doing?

The Tata Power Company Limited (NSE:TATAPOWER) received a lot of attention from a substantial price increase on the NSEI over the last few months. The recent share price gains has brought the company back closer to its yearly peak. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Tata Power’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Tata Power

What Is Tata Power Worth?

According to our 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. 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 35.09x is currently trading slightly above its industry peers’ ratio of 31.9x, which means if you buy Tata Power today, you’d be paying a relatively sensible price for it. And if you believe that Tata Power should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. In addition to this, it seems like Tata Power’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Tata Power generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. With profit expected to grow by 29% over the next couple of years, the future seems bright for Tata Power. 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? It seems like the market has already priced in TATAPOWER’s positive outlook, 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 TATAPOWER? 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 TATAPOWER, 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 TATAPOWER, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. At Simply Wall St, we found 1 warning sign for Tata Power and we think they deserve your attention.

If you are no longer interested in Tata Power, 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.