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Kirloskar Brothers Limited (NSE:KIRLOSBROS), which is in the machinery business, and is based in India, saw a significant share price rise of over 20% in the past couple of months on the NSEI. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Today I will analyse the most recent data on Kirloskar Brothers’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for Kirloskar Brothers
Is Kirloskar Brothers still cheap?
According to my valuation model, Kirloskar Brothers seems to be fairly priced at around 14.13% above my intrinsic value, which means if you buy Kirloskar Brothers today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is ₹144.04, there’s only an insignificant downside when the price falls to its real value. Furthermore, Kirloskar Brothers’s low beta implies that the stock is less volatile than the wider market.
Can we expect growth from Kirloskar Brothers?
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. 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. With profit expected to more than double over the next couple of years, the future seems bright for Kirloskar Brothers. 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? KIRLOSBROS’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 KIRLOSBROS, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, 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.