Magma Fincorp Limited (NSEI:MAGMA), a consumer finance company based in India, received a lot of attention from a substantial price increase on the NSEI over the last few months. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at Magma Fincorp’s outlook and value based on the most recent financial data to see if the opportunity still exists. View our latest analysis for Magma Fincorp
What’s the opportunity in Magma Fincorp?
According to my valuation model, the stock is currently overvalued by about 68%, trading at ₹180.05 compared to my intrinsic value of ₹107.35. This means that the opportunity to buy Magma Fincorp at a good price has disappeared! In addition to this, it seems like Magma Fincorp’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.
What kind of growth will Magma Fincorp generate?
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 grow by 67.44% over the next couple of years, the future seems bright for Magma Fincorp. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? MAGMA’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe MAGMA 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 MAGMA for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for MAGMA, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.