From Data Analysis to Decision Making The Role of Stock Analysis in Investing
Stock analysis: Stock analysis is the method used by a trader or investor to examine and evaluate the stock market. It is then used to make informed decisions about buying and selling shares. The objective here is to pick out 3 stocks, one large cap, mid cap and small cap each and analyse the reasons for choosing them.
- Tata Consultancy Services (Large cap)
This company was founded in 1968 and is based in Mumbai. It provides IT and consultancy services and is the second largest Indian company by market cap. TCS operates in 150 locations across 46 countries with over 616,000 employees worldwide (as of Sep 2023).
Known for its expertise in digital transformation, cloud computing, and other emerging technologies.
The high market of the company suggests that the investors' confidence in the company. While the industry PE (28.07), it's not excessively high, and could indicate future growth expectations, the dividend yield is 1.91% which suggests moderate returns for the investors.
The ROE is at 50.73% and the next best to it is Infosys which is at 31.82% which suggests strong profitability to investors equity. The company's sales have also gone up in the past 3 years, which is a positive indicator and should encourage investors to buy into the stock.
Forecasts: Price estimates for TCS suggest that the stock could reach ₹4,969 by 2025, with a range of ₹4,750 and ₹5,188. Forecasts by moneycontrol.com also suggest that the stock has a 30-38% chance of outperforming in the coming months. The stock has consistently outperformed for the past 4 months, with prices going beyond estimates.
- Tata ELXSI (Mid cap)
This company was founded in 1989 and is based in Pune. It provides design and technology services with over 35 locations across 15 countries (as of April 2024).
Expertise in automotive engineering, broadcast, communications, healthcare, and transportation sectors. Offers design thinking, digital technologies (IoT, Cloud, VR, AI) integration for product and service reimagination.
The company’s sales growth is 27.28% as compared to last year's average 25.01%. The profits have also grown to 39.39%.
The PE ratio is 58.17 as compared to the industry PE 31.79. This indicates that the stock could be slightly overvalued.
There is a significant increase in the company's sales in the past three quarters which gives out a strong operating profit for investors and proves to be a factor for buying the stock.
The company has a strong focus on IoT and cloud services, with AI strengthening its infrastructure by the day. The company’s presence in multiple sectors reduces the risk of investing in it considerably. The company also has an indirect connection with Apple through the Tata group which could benefit from AR demand.
Strong fundamentals and strategic connections make it a compelling investment despite high P/E. Forecasts: Estimations suggest prices to reach 7355.58 on the downside and 7463.43 on the upside. Currently, the stock is not doing that well and forecasts suggest that it could fall lower in the future, with some investors being advised to stop losses by June 2024.
- Jamna Auto Industries Ltd. (Small cap)
This company was founded in 1954 and is based in Yamuna Nagar. It is a manufacturer of automotive components, specifically suspension systems.
The company is a leader in India’s OEM suspension segment with a 66% market share. They have manufacturing plants across India and exports to over 25 countries.
Rising demand for commercial vehicles in India could drive sales, leading to further growth of the company.
The company’s PE 25.45 is quite less valued than the industry PE 43.94 which shows that the stock is a bit undervalued.
The ROE offered by the stock (22.65%) is also less as compared to its peers.
There is also a slight increase in the company’s sales which has reflected on the company’s operating profit. This suggests the stock could be a good option for investors looking to buy.
The company has a strong set of clients like Ashok Leyland, Volvo, Eicher motors and Tata motors, which suggests strong future prospects.
The growth potential that the company has also aligns with the rising commercial vehicle demand of India.
Forecast: Estimates suggest that the price of the stock could reach an average 1 year price target of 142.12 INR with a downside of 129.28 and an upside of 153.3 INR. The price can be poised to reach new highs of the 140s due to increased manufacturing and investments. Most of these indicates that it is a good buy currently.
Blog By: Shubham Sawant, Assisted By: Megh Jadhav
