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Edelweiss Financial Services Limited (NSE:EDELWEISS), which is in the capital markets business, and is based in India, received a lot of attention from a substantial price movement on the NSEI over the last few months, increasing to ₹327.95 at one point, and dropping to the lows of ₹235.9. 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 Edelweiss Financial Services’s current trading price of ₹235.9 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Edelweiss Financial Services’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Check out our latest analysis for Edelweiss Financial Services
Is Edelweiss Financial Services still cheap?
The stock seems fairly valued at the moment according to my relative valuation model. 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 22x is currently trading slightly above its industry peers’ ratio of 17.64x, which means if you buy Edelweiss Financial Services today, you’d be paying a relatively reasonable price for it. And if you believe Edelweiss Financial Services should be trading in this range, then there isn’t really any room for the share price grow beyond what it’s currently trading. Is there another opportunity to buy low in the future? Since Edelweiss Financial Services’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 does the future of Edelweiss Financial Services look like?
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. With profit expected to grow by 64.5% over the next couple of years, the future seems bright for Edelweiss Financial Services. 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? It seems like the market has already priced in EDELWEISS’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at EDELWEISS? Will you have enough conviction to buy should the price fluctuate below the true value?