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The India Cements Limited (NSE:INDIACEM), which is in the basic materials 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 ₹114.4 at one point, and dropping to the lows of ₹92. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether India Cements's current trading price of ₹94.15 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 India Cements’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 India Cements
What's the opportunity in India Cements?
Good news, investors! India Cements is still a bargain right now. My valuation model shows that the intrinsic value for the stock is ₹133.66, but it is currently trading at ₹94.15 on the share market, meaning that there is still an opportunity to buy now. What’s more interesting is that, India Cements’s share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. 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.
Can we expect decent returns from India Cements?
Valuation is only one aspect of forming your investment views on India Cements. 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. We can determine the quality of a stock many ways; one way is to look at how much return it generates relative to the money we’ve invested in the stock. India Cements is expected to return 4.9% of your investment next year if you buy the stock today. This is a pretty average return, which doesn’t significantly add much to the case for owning the stock.
What this means for you:
Are you a shareholder? Although INDIACEM is currently undervalued, the low future return begs the question – is there a better opportunity elsewhere? Think about whether you want to increase your portfolio exposure to INDIACEM, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you’ve been keeping an eye on INDIACEM for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Since it is currently undervalued, now is a great time to make a decision. But keep in mind the low future return, and whether the opportunity cost of investing in INDIACEM versus another stock is worth it.