A majority of analysts believe one should buy shares of Tata Steel at this point due to favourable fundamental and technical factors.
Shares of the company have underperformed the BSE Metal index and the equity benchmark Sensex in the last one year. The stock hit its 52-week high of ₹138.63 on BSE on April 6, 2022.
At the current juncture, the stock is down about 19 percent from its 52-week high level. In the last one year, shares of the company have gained just over 2 percent while the BSE Metal index and the BSE Sensex have gained over 6 percent and 9 percent, respectively.
Tata Steel share price in the last one year.
The stock's trailing twelve months (TTM) price-to-earnings ratio (PE) is still above the industry median. As per Trendlyne, the stock's TTM PE ratio stands at 8. The current PE of the stock, as per the BSE is 7.
TTM PE is a valuation multiple derived by dividing the current share price by the last four quarterly earnings per share (EPS).
MintGenie talked to fundamental and technical analysts to understand what investors should do with the stock. Here's what they said:
Fundamental Views
Views of Girish Sodani, Head of Equity Market at Swastika Investmart
What are the early trends we should look for to identify a stock that could multiply in value over the long term?
Typically, we would want to notice a trend of growing return on capital employed (ROCE) and Tata Steel has a ROCE of 23 percent.
In absolute terms, that is a great return and it is even better than the metals and mining industry's average of 15 percent.
The company's future plans include a focus on investing ₹12,000 crore for FY23 out of this ₹8,500 crore will be invested in India and the rest will be in European operations.
Shares of Tata Steel rose in the last few session after the company’s board cleared the issue of fixed-rated, unsecured, redeemable, rated, listed non-convertible debentures (NCDs) on a private placement basis to eligible investors.
The 2.15 lakh NCDs of ₹1 lakh each will aggregate to ₹2,150 crore.
"We remain optimistic on Tata Steel with midterm to long term holding for a target of ₹150+ and maintain stop loss of below ₹82," said Sodani.
Views of Aamar Deo Singh, Head Advisory, Angel One
Tata Steel, along with metal stocks, rallied on the back of the possibility of an uptick in the Chinese economy, but currently, the stock appears to be in a consolidation mode, unable to breach and sustain above the ₹125 mark.
"Investors can look at booking profits at the current levels, with strong support seen around the ₹90-95 zone, which is an excellent accumulation zone. Till we see a breakout above the ₹125 mark, the stock will continue to drift sideways and once the stock sustains above the ₹125 mark, it has the potential to rally towards the ₹140 -145 levels in the medium term," said Singh.
Technical Views
Views of Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers
For nearly the last five, Tata steel stock has been making higher top and higher bottom structures, confirming its bullish stance.
At the current juncture, it has been sustaining above the 200 daily exponential moving average which is a positive sign.
From the indicators' point of view, daily RSI has formed an impulsive structure near the 40 level and then rebounded (refer to the chart below) which hints at an upside in the upcoming sessions.
Additionally, the daily MACD histogram is losing downside momentum (refer to the chart), reconfirming our bullish stance in said counter.
"Buy in the range of ₹112 -113 for a target price of ₹122. Maintain a stop loss of ₹107 on a daily close basis," said the analyst.
Tata Steel technical chart.
Views of Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher
The stock has been, slowly and steadily, picking up momentum, indicating an ascending channel pattern on the daily chart.
It has currently maintained the lower trendline support zone near ₹108 and giving a pullback to improve the bias.
Further, a decisive move past the ₹114 level would strengthen the trend and one can expect a further rise in the coming days.
"We suggest buying and accumulating the stock for an upside target of ₹124-126, keeping a stop loss of ₹108," said the analyst.
According to a MintGenie poll, an average of 27 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.
How to choose the right stock
First Published: 24 Feb 2023, 12:53 PM
IST
As an expert with a demonstrable understanding of financial markets, particularly in the realm of stocks and investments, I'll delve into the various concepts and factors mentioned in the article:
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Tata Steel Performance Overview:
- The article highlights that Tata Steel shares have underperformed both the BSE Metal index and the Sensex in the last year.
- The stock hit its 52-week high of ₹138.63 on April 6, 2022, but is currently down about 19 percent from that level.
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Valuation Metrics:
- The trailing twelve months (TTM) price-to-earnings ratio (PE) is a key valuation metric discussed in the article.
- The stock's TTM PE ratio stands at 8 according to Trendlyne, while the BSE reports a current PE of 7.
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Fundamental Views:
- Girish Sodani, Head of Equity Market at Swastika Investmart, emphasizes the importance of growing Return on Capital Employed (ROCE).
- Tata Steel's ROCE is noted to be 23 percent, surpassing the industry average of 15 percent.
- The company's future plans involve a significant investment of ₹12,000 crore for FY23, with a focus on ₹8,500 crore in India and the remainder in European operations.
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Recent Developments:
- Tata Steel's shares rose after the board cleared the issuance of non-convertible debentures (NCDs) amounting to ₹2,150 crore.
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Target and Stop Loss Recommendations:
- Girish Sodani remains optimistic on Tata Steel, suggesting a target of ₹150+ with a stop loss below ₹82.
- Aamar Deo Singh recommends investors to consider booking profits at current levels, with strong support seen around ₹90-95.
- Jigar S. Patel suggests a buy in the range of ₹112-113 with a target price of ₹122 and a stop loss of ₹107.
- Vaishali Parekh suggests buying and accumulating the stock for an upside target of ₹124-126, with a stop loss of ₹108.
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Technical Analysis:
- Jigar S. Patel notes a bullish stance with higher top and higher bottom structures and the stock sustaining above the 200 daily exponential moving average.
- Vaishali Parekh highlights an ascending channel pattern on the daily chart, with the stock maintaining lower trendline support near ₹108.
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Market Sentiment:
- According to a MintGenie poll, an average of 27 analysts have a 'buy' call on the Tata Steel stock.
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Investor Advice:
- Aamar Deo Singh advises caution until there's a breakout above the ₹125 mark, suggesting the stock is in consolidation mode.
- Technical analysts Jigar S. Patel and Vaishali Parekh provide specific buy ranges, target prices, and stop losses for investors.
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Disclaimer:
- The article concludes with a disclaimer that the views and recommendations are those of individual analysts and broking firms, not representing the views of MintGenie.
In summary, the article provides a comprehensive overview of Tata Steel's performance, valuation metrics, fundamental analysis, recent developments, and technical perspectives, offering a well-rounded assessment for potential investors.
