APL Apollo Tubes Ltd., Star Cement Ltd., Nuvoco Vistas Corp. Ltd., Supreme Industries Ltd. and Dalmia Bharat Ltd. are among a group of stocks that now trade below their five-year average valuation multiples despite retaining strong analyst support.
Analysts tracked by Bloomberg see upside of as much as 35.9% in some of these stocks, even after a broad market selloff that began on Feb. 27 — since the US-Iran conflict began. An NDTV Profit analysis of Bloomberg data covering companies tracked by at least 10 analysts found several stocks that moved from trading at steep premiums to their historical valuations to trading below their long-term averages.
The shift comes as Indian equities continue to trade below levels seen before the Iran conflict began. The Sensex and Nifty fell as much as 13% by the end of March and have yet to recover their Feb. 27 levels. Higher crude oil prices, inflation concerns, foreign investor outflows and pressure on the rupee weighed on sentiment during the period. Brent crude rose as high as $120 a barrel during the conflict, prompting investors to reassess valuations across sectors.
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Analysts Still Back These Stocks
Several stocks that now trade below their five-year average valuation multiples continue to attract strong analyst support. The market selloff has pushed a handful of stocks below their historical valuation averages, but analysts continue to recommend several of these companies and see double-digit upside from current levels.
Star Cement stands out among the screened companies. The stock trades below its five-year average valuation, carries buy ratings from 87.5% of analysts tracked by Bloomberg and offers implied upside of 35.9%.
Dalmia Bharat also trades below its historical average valuation. Analysts see upside of 26.6%, while 65% of those tracked by Bloomberg recommend buying the stock. APL Apollo has buy ratings from 90.5% of analysts and implied upside of 23.4%. Supreme Industries carries buy ratings from 90% of analysts, with return potential of 22.6%.
Nuvoco Vistas trades below its five-year average valuation after one of the sharpest reratings in the group. Analysts continue to see upside of 21.2%, while 79.2% recommend buying the stock.
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From Premium To Discount
Before the selloff, investors were willing to pay steep premiums for several of these stocks relative to their own history. That changed over the following months, with some companies recording sharp declines in valuation premiums and moving below their long-term averages.
The table below shows the companies that recorded the sharpest decline in valuation premiums relative to their own five-year average price-to-earnings ratios since Feb. 27.
Prestige Estates Projects Ltd. traded at nearly 290% above its five-year average price-to-earnings multiple on Feb. 27. By June 4, that premium had narrowed to about 113%. Analysts see upside of 33.6%, while 78.6% recommend buying the stock.
JSW Steel Ltd. traded at 88.1 times earnings on Feb. 27, nearly 279% above its five-year average multiple of 31.5 times. By June 4, the stock traded at 14.4 times earnings, below its historical average. The stock has buy ratings from 73.7% of analysts, though implied upside stands at 3.8%.
Indian Oil Corp. Ltd. traded at 19 times earnings on Feb. 27, around 249% above its five-year average valuation. By June 4, the stock traded at 4.5 times earnings, below its historical average. More than half the analysts tracked by Bloomberg recommend buying the stock, with consensus upside of 12.1%.
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Ramco Cements Ltd., Navin Fluorine International Ltd., Bharat Heavy Electricals Ltd. and APL Apollo also recorded some of the largest declines in valuation premiums relative to their own historical averages.
While not every stock has retained strong analyst conviction, several names that have moved from trading at significant premiums to below their historical valuation averages continue to attract buy recommendations and double-digit upside estimates from analysts.
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