Today we’re going to take a look at the well-established Nestlé India Limited (NSEI:NESTLEIND). The company’s stock saw a double-digit share price rise of over 10% in the past couple of months on the NSEI. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on Nestlé India’s outlook and valuation to see if the opportunity still exists. Check out our latest analysis for Nestlé India
Is Nestlé India still cheap?
Nestlé India is currently overpriced based on 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 73.8x is currently well-above the industry average of 24x, meaning that it is trading at a more expensive price relative to its peers. In addition to this, it seems like Nestlé India’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 Nestlé India 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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. With profit expected to grow by 63.95% over the next couple of years, the future seems bright for Nestlé India. 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? It seems like the market has well and truly priced in Nestlé India’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe Nestlé India 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 Nestlé India for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for Nestlé India, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.