R M Drip and Sprinklers Systems Limited (NSEI:RMDRIP), a INR₹485.03M small-cap, operates in the machinery manufacturing industry, which faces increasing demand of capital equipment and machinery from developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, a positive double-digit growth of 15.19% in the upcoming year . Below, I will examine the sector growth prospects, as well as evaluate whether R M Drip and Sprinklers Systems is lagging or leading in the industry. See our latest analysis for R M Drip and Sprinklers Systems
What’s the catalyst for R M Drip and Sprinklers Systems’s sector growth?
Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains and operations more efficiently, and build strategic partnerships that will help grow market share. Over the past year, the industry saw growth in the teens, beating the Indian market growth of 12.80%. R M Drip and Sprinklers Systems leads the pack with its impressive earnings growth of over 100% last year. This proven growth may make R M Drip and Sprinklers Systems a more expensive stock relative to its peers.
Is R M Drip and Sprinklers Systems and the sector relatively cheap?
Machinery companies are typically trading at a PE of 33x, higher than the rest of the Indian stock market PE of 26x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 10.46% on equities compared to the market’s 9.88%. On the stock-level, R M Drip and Sprinklers Systems is trading at a lower PE ratio of 13x, making it cheaper than the average machinery stock. In terms of returns, R M Drip and Sprinklers Systems generated 42.54% in the past year, which is 32.07% over the machinery sector.
What this means for you:
Are you a shareholder? R M Drip and Sprinklers Systems recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. In addition to this, its PE is below its machinery peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market isn’t as bullish of the growth going forward. If your investment thesis of the company hasn’t changed, now may be the right time to accumulate more of R M Drip and Sprinklers Systems, if you’re not already highly concentrated in the stock.
Are you a potential investor? If R M Drip and Sprinklers Systems has been on your watchlist for a while, now may be the best time to enter into the stock. Its industry-beating growth delivered have not been fully accounted for in its shares given its lower PE ratio relative to its peers. Before you make the decision to buy, I recommend you look at other fundamentals factors and see whether there is a reason why the stock may be trading at a discount in the machinery sector.