The breadth of the broader markets is quite weak today. The benchmark Nifty 50 index is down 0.12% to 22,328 by 1:42 PM IST and most of the sectoral indices are trading in the red zone. In the midst of this sell-off, the share price of UltraTech Cement (NS:ULTC) has given a clear breakdown on the back of strong investors’ liquidation.
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The company together with its subsidiaries manufactures and sells cement and cement-related products in India and has a market capitalization of INR 2,83,519 crore. The stock has delivered a healthy 33% return in the last one year, however, this rally has also stretched its valuations. As per the current earnings, the stock is trading at a TTM P/E ratio of 44.21, compared to the sector’s average of 25.4.
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ProTips also highlights the stock is trading at expensive valuations relative to near-term earnings growth and also as per the P/B ratio. Such warning signs can build confidence on a short trade. But more importantly, how much downside there can be gauged by the fair value of the stock which in this case is INR 8,036, depicting a 15% probable fall from the CMP of INR 9,581.
Image Source: Investing.com
To further blend this fundamental information with the technical chart setup, traders can find a good opportunity. The stock broke below its horizontal support of a dissenting triangle chart pattern on the daily time frame. This breakdown is a very strong signal of a trend reversal and with its overvalued status, the stock can be a good candidate on the short side.
Just by the technical chart pattern, the stock can slide to INR 8,900 in the near future.
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