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At ₹227, Is Adani Transmissions Limited (NSE:ADANITRANS) Worth Looking At Closely?

Simply Wall St

Adani Transmissions Limited (NSE:ADANITRANS), which is in the electric utilities business, and is based in India, saw a decent share price growth in the teens level on the NSEI over the last few months. As a ₹243b market cap stock, it seems odd Adani Transmissions is not more well-covered by analysts. Although, there is more of an opportunity for mispricing in stocks with low coverage, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at Adani Transmissions’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Adani Transmissions

What's the opportunity in Adani Transmissions?

Adani Transmissions appears to be overvalued according to my relative valuation model. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 77.32x is currently well-above the industry average of 14.41x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, Adani Transmissions’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.

Can we expect growth from Adani Transmissions?

NSEI:ADANITRANS Past and Future Earnings, October 5th 2019

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. In Adani Transmissions’s case, its earnings over the next year are expected to double, indicating an incredibly optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? ADANITRANS’s optimistic future growth appears to have been factored into the current share price, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe ADANITRANS 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 tabs on ADANITRANS for some time, 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 ADANITRANS, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Adani Transmissions. You can find everything you need to know about Adani Transmissions in the latest infographic research report. If you are no longer interested in Adani Transmissions, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.