Is Safa Systems overvalued or undervalued?

As of 7 July 2025, the valuation grade for Safa Systems has moved from risky to very expensive, indicating a significant shift in market perception. The company is currently considered overvalued. Key ratios highlight this valuation concern, with a PE ratio of 59.54, an EV to EBIT of 29.94, and an EV to EBITDA of 29.29, all of which are substantially higher than industry norms.
In comparison to peers, Safa Systems' valuation metrics are starkly elevated; for instance, TCS has a PE ratio of 25.43 and an EV to EBITDA of 17.77, while Infosys stands at a PE of 25.27 and an EV to EBITDA of 16.47. These comparisons underscore the overvaluation of Safa Systems, especially when considering its low ROE of 4.69% and ROCE of 6.29%. Despite a remarkable year-to-date stock return of 192.72%, which outpaces the Sensex's 6.79%, the underlying valuation metrics suggest that the stock's current price is not justified by its financial performance.