Action Construction Equipment Limited (NSE:ACE), may not be a large-cap stock, but it has seen a significant share price rise of over 20% in the past two months on the NSEI . As a small-cap stock, barely covered by analysts, there’s usually more opportunity for mispricing because there’s less activity to bring the stock closer to its fair value. Is there still a possibility here to buy? Let’s take a closer look at Action Construction Equipment‘s valuation and outlook to see if there’s still a bargain opportunity.
See our latest review for Action Construction Equipment
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According to my multiple price model, which compares the company’s price-earnings ratio to the industry average, the stock price seems justified. In this case, I used the Price/Earnings (PE) ratio since there is not enough information to reliably predict the stock’s cash flow. I find that Action Construction Equipment’s ratio of 26.53x trades slightly above its industry peers’ ratio of 25.65x, which means that if you buy Action Construction Equipment today, you would pay a relatively reasonable price. And if you think Action Construction Equipment should be trading at this level for the long term, then there should be only a fairly intangible downside compared to other industry peers. So, is there another chance to buy low in the future? Since the Action Construction Equipment share is quite volatile (i.e. its price movements are amplified relative to the rest of the market), this could mean that the price may drop, giving us the opportunity to buy later. This is based on its high beta, which is a good indicator of stock price volatility.
What does the future of Action Construction Equipment look like?
Investors looking for portfolio growth may want to consider a company’s prospects before buying its stock. Buying a big company with solid prospects at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations. With profits expected to increase by 21% over the next two years, the future looks bright for Action Construction Equipment. It seems that a higher cash flow is expected for the stock, which should translate into a higher valuation of the stock.
What this means for you
Are you a shareholder? ACE’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors that we haven’t considered today, such as the background of its management team. Have these factors changed since the last time you consulted ACE? Will you have enough conviction to buy if the price moves below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on ACE, now might not be the best time to buy, given that it’s trading around industry price multiples. However, the bullish outlook is encouraging for ACE, which means it is worth digging deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
In light of this, if you want to do more analysis on the company, it is essential to be aware of the risks involved. For example – Action Construction Equipment has 1 warning sign we think you should know.
If you are no longer interested in Action Construction Equipment, you can use our free platform to view our list of over 50 other stocks with high growth potential.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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