Is VLS Finance overvalued or undervalued?

Valuation Metrics Paint a Cautionary Tale

As of early December 2025, VLS Finance’s valuation grade shifted from "risky" to "very expensive," signalling heightened market expectations. The company’s price-to-earnings (PE) ratio stands at a negative figure, which is unusual and typically indicative of losses or accounting anomalies. This contrasts sharply with its price-to-book (P/B) value of 0.42, suggesting the stock trades below its book value, a factor that might imply undervaluation at first glance.

However, other enterprise value (EV) multiples such as EV to EBIT and EV to EBITDA are deeply negative, reflecting operational challenges or accounting peculiarities. The EV to sales ratio is extraordinarily high, which could indicate that the market is pricing in significant future growth or is disconnected from current fundamentals. Meanwhile, the PEG ratio is zero, signalling no earnings growth is currently factored into the price, which is unusual for a "very expensive" stock.

Profitability and Returns Raise Concerns

VLS Finance’s return on capital employed (ROCE) and return on equity (ROE) are both negative, at approximately -1.3% and -0.75% respectively. These figures highlight that the company is currently not generating adequate returns on its investments or shareholder equity, which is a red flag for value investors. Dividend yield remains modest at 0.46%, offering limited income appeal.

Peer Comparison Highlights Valuation Extremes

When compared to peers in the NBFC and financial services sector, VLS Finance’s valuation appears extreme. While Bajaj Finance and Bajaj Finserv are also classified as expensive or very expensive, their positive PE ratios and healthier EV/EBITDA multiples suggest stronger operational performance. Other companies like Life Insurance and SBI Life Insurance are rated as "very attractive" with much lower valuation multiples, indicating better value propositions.

Notably, some peers with high valuations also demonstrate robust growth prospects and profitability, unlike VLS Finance’s current financial snapshot. This disparity suggests that VLS Finance’s elevated valuation may not be fully justified by its fundamentals.

Stock Price Performance: A Mixed Picture

VLS Finance’s stock price has shown remarkable gains over the medium to long term, with a five-year return exceeding 360% and a ten-year return surpassing 700%. These figures significantly outperform the Sensex benchmark, which returned around 89% and 233% over the same periods respectively. However, more recent performance is less encouraging, with a year-to-date loss of 3.6% and a one-year decline of over 13%, while the Sensex gained 9.1% and 5.3% respectively.

This divergence suggests that while the company has delivered substantial wealth creation historically, current market conditions and company fundamentals may be weighing on investor sentiment.

Market Price and Trading Range

Currently trading near ₹327, VLS Finance is closer to its 52-week high of ₹388 than its low of ₹190, reflecting recent price strength. The stock’s weekly and monthly returns have been positive, indicating some short-term momentum despite the valuation concerns.

Investor Takeaway: Overvalued or Undervalued?

Despite the attractive long-term returns, the combination of negative profitability metrics, unusual valuation multiples, and a "very expensive" rating suggests that VLS Finance is currently overvalued relative to its fundamentals. The market appears to be pricing in expectations that may not be supported by the company’s recent financial performance.

Investors should exercise caution and consider the risks associated with the company’s operational challenges and valuation extremes. Comparing VLS Finance with peers that offer better profitability and more reasonable valuations could be a prudent strategy for portfolio optimisation.

Conclusion

In summary, while VLS Finance has demonstrated strong historical returns, its current valuation appears disconnected from its underlying financial health. Negative returns on capital and equity, combined with extreme valuation multiples, point towards an overvalued status. Investors should weigh these factors carefully and consider alternative NBFC stocks with stronger fundamentals and more balanced valuations before committing capital.

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