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Shree Cement Limited (NSEI:SHREECEM), a basic materials company based in India, saw significant share price volatility over the past couple of months on the NSEI, rising to the highs of ₹18391.95 and falling to the lows of ₹16000.75. 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 Shree Cement’s current trading price of ₹16999.85 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 Shree Cement’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 Shree Cement
What is Shree Cement worth?
Shree Cement 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 43.98x is currently well-above the industry average of 29.59x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, Shree Cement’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.
What does the future of Shree Cement 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. Shree Cement’s earnings over the next few years are expected to increase by 66.43%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in SHREECEM’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 SHREECEM 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.