Is Now The Time To Look At Buying VA Tech Wabag Limited (NSE:WABAG)?

VA Tech Wabag Limited (NSE:WABAG), might not be a large cap stock, but it saw a significant share price rise of 64% in the past couple of months on the NSEI. The company's trading levels have reached its high for the past year, following the recent bounce in the share price. 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? Let’s examine VA Tech Wabag’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for VA Tech Wabag

Is VA Tech Wabag Still Cheap?

VA Tech Wabag is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to 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 27.3x is currently well-above the industry average of 15.72x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that VA Tech Wabag’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from VA Tech Wabag?

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. 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. VA Tech Wabag's earnings over the next few years are expected to increase by 52%, 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? It seems like the market has well and truly priced in WABAG’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe WABAG 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 WABAG 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 optimistic prospect is encouraging for WABAG, 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 VA Tech Wabag as a business, it's important to be aware of any risks it's facing. Case in point: We've spotted 1 warning sign for VA Tech Wabag you should be aware of.

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. 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.