Is There Now An Opportunity In Johnson Controls-Hitachi Air Conditioning India Limited (NSE:JCHAC)?
Johnson Controls-Hitachi Air Conditioning India Limited (NSE:JCHAC), which is in the consumer durables 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 small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s examine Johnson Controls-Hitachi Air Conditioning India’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
See our latest analysis for Johnson Controls-Hitachi Air Conditioning India
What is Johnson Controls-Hitachi Air Conditioning India worth?
Johnson Controls-Hitachi Air Conditioning India 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 54.06x is currently well-above the industry average of 22.32x, meaning that it is trading at a more expensive price relative to its peers. Another thing to keep in mind is that Johnson Controls-Hitachi Air Conditioning India’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its intrinsic value over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.
Can we expect growth from Johnson Controls-Hitachi Air Conditioning India?
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. 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. Johnson Controls-Hitachi Air Conditioning India’s earnings over the next few years are expected to increase by 87%, 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 JCHAC’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe JCHAC 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 JCHAC 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 optimistic prospect is encouraging for JCHAC, 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 Johnson Controls-Hitachi Air Conditioning India. You can find everything you need to know about Johnson Controls-Hitachi Air Conditioning India in the latest infographic research report. If you are no longer interested in Johnson Controls-Hitachi Air Conditioning India, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
