Lux Industries Limited (NSEI:LUXIND) led the NSEI gainers with a relatively large price hike in the past couple of weeks. As a large-cap stock, it seems odd LUXIND is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could LUXIND still be trading at a low price relative to its actual value? Today I will analyse the most recent data on LUXIND’s outlook and valuation to see if the opportunity still exists. View our latest analysis for Lux Industries
What’s the opportunity in LUXIND?
According to my relative valuation model, the stock is currently overvalued. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 55.5x is currently well-above the industry average of 12.5x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, LUXIND’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What does the future of LUXIND look like?
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 LUXIND future expectations. LUXIND’s revenue growth are expected to be in the teens in the upcoming year, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to 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 LUXIND’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe LUXIND should trade below its current price, selling high and buying it back up again when its price falls towards its real value 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 an eye on LUXIND for a while, 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 positive outlook is encouraging for LUXIND, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.