Is Now An Opportune Moment To Examine VA Tech Wabag Limited (NSE:WABAG)?

VA Tech Wabag Limited (NSE:WABAG), 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. As a small cap stock, which tends to lack high analyst coverage, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Today I will analyse the most recent data on VA Tech Wabag’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for VA Tech Wabag

What's the opportunity in VA Tech Wabag?

According to my valuation model, VA Tech Wabag seems to be fairly priced at around 7.7% below my intrinsic value, which means if you buy VA Tech Wabag today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth ₹265.25, then there’s not much of an upside to gain from mispricing. Although, there may be an opportunity to buy in the future. This is because VA Tech Wabag’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will VA Tech Wabag generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. VA Tech Wabag's earnings over the next few years are expected to increase by 76%, 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? WABAG’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. 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 the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on WABAG, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into VA Tech Wabag, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for VA Tech Wabag and you'll want to know about it.

If you are no longer interested in VA Tech Wabag, 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. 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.
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