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Supreme Infrastructure India Limited (NSEI:SUPREMEINF), a construction company based in India, received a lot of attention from a substantial price movement on the NSEI over the last few months, increasing to ₹125.35 at one point, and dropping to the lows of ₹44.65. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether Supreme Infrastructure India’s current trading price of ₹44.75 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Supreme Infrastructure India’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. View our latest analysis for Supreme Infrastructure India
What’s the opportunity in Supreme Infrastructure India?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that Supreme Infrastructure India’s ratio of 0.54x is trading slightly below its industry peers’ ratio of 1.96x, which means if you buy Supreme Infrastructure India today, you’d be paying a relatively fair price for it. And if you believe Supreme Infrastructure India should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since Supreme Infrastructure India’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of returns can we expect from Supreme Infrastructure India in the future?
Valuation is only one aspect of forming your investment views on Supreme Infrastructure India. Another thing to consider is whether it is actually a high-quality company. The best type of investment is always in a great company, producing robust returns at a cheap price. 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. Given that Supreme Infrastructure India is expected to be loss-making over the next couple of years, you can expect a negative return on your investment over this period of time. Not a very compelling case to buy right now given the uncertainty around profitability.