Is A.K.Capital Serv overvalued or undervalued?

Valuation Metrics Indicate Attractiveness

A.K.Capital Serv’s price-to-earnings (PE) ratio stands at approximately 10.4, which is notably lower than many of its peers in the Non-Banking Financial Company (NBFC) sector. The price-to-book (P/B) value is just under 1, suggesting the stock is trading close to its book value, a sign that the market may be undervaluing the company’s net assets. Additionally, the enterprise value to EBITDA ratio is around 11.4, which is moderate compared to other NBFCs, indicating a reasonable valuation relative to earnings before interest, tax, depreciation, and amortisation.

The company’s PEG ratio, which adjusts the PE ratio for earnings growth, is higher at 3.1. While this suggests that the stock may be somewhat expensive relative to its growth rate, it is important to consider this alongside other metrics and the company’s overall financial health.

Strong Returns Outperforming the Market

Over various time horizons, A.K.Capital Serv has delivered impressive returns that significantly outpace the benchmark Sensex. For instance, the stock has generated a 1-year return exceeding 25%, compared to the Sensex’s 7.3%. Over a decade, the stock’s return surpasses 580%, dwarfing the Sensex’s 227%. This strong performance reflects the company’s operational resilience and growth potential, which may justify its current valuation.

Peer Comparison Highlights Relative Value

When compared to its peers, A.K.Capital Serv’s valuation appears attractive. Leading NBFCs such as Bajaj Finance and Bajaj Finserv trade at significantly higher PE ratios, often above 30, and elevated EV/EBITDA multiples. Even some companies with “very attractive” valuations, like Life Insurance firms, have lower PEG ratios, indicating faster growth relative to price. However, these companies often trade at much higher absolute valuations, reflecting their scale and market dominance.

A.K.Capital Serv’s return on capital employed (ROCE) and return on equity (ROE) are moderate at 8.5% and 9.4% respectively, suggesting efficient use of capital but room for improvement compared to top-tier peers. The dividend yield of 2.79% adds an income component that may appeal to investors seeking steady returns.

Market Price and Volatility

The stock’s current price is ₹1,505, down slightly from the previous close of ₹1,563. Its 52-week range spans from ₹896 to ₹1,719, indicating substantial price appreciation over the past year. Despite a recent weekly dip of over 4%, the stock’s monthly and yearly returns remain robust, underscoring underlying strength despite short-term volatility.

Conclusion: Undervalued with Growth Potential

Considering the valuation metrics, peer comparisons, and strong historical returns, A.K.Capital Serv currently appears undervalued. Its PE and P/B ratios are modest relative to sector leaders, while its consistent outperformance against the Sensex highlights robust fundamentals. The recent upgrade in valuation grade from fair to attractive further supports this view.

However, investors should weigh the relatively high PEG ratio and moderate returns on capital, which suggest that growth expectations are priced in to some extent. The stock’s recent price volatility also warrants caution for short-term traders. Overall, for long-term investors seeking exposure to the NBFC sector, A.K.Capital Serv offers a compelling risk-reward profile at current levels.

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