Gruh Finance

I think a question like this cannot be answered in the abstract but should be answered in the context of the stock's prospects, valuations and alternatives.

There is no doubting the quality of the company and the pedigree of the management. However, this is priced in because the stock is quoting at a P/E of 43x and a P/BV of 14x. The stock has gone down because its quarterly results are not able to match the expectations necessary to maintain the valuations.

If the stock does not match expectations in the future as well, one can expect price correction or time correction (i.e. the price will remain stagnant till the earnings catch up to make the P/E, P/BV look more reasonable).

The stock has under-performed its peers. Gruh is up 47% on a 1 year basis. However, Repco is up 69%, GIC Housing is up 98%, Dewan Housing is up 101% and CanFin Homes is up 210%. The under-performance continues if you broaden the sample size to include other NBFCs like Bajaj Finance, etc.

So, I think the question that requires to be considered is that if you have to allocate capital and there are a number of contenders for that, why do we choose a particular stock. It must have something special that the others lack.

If quality of the stock is of paramount consideration, then one can choose top-tier stocks like HDFC Bank and Gruh. However, one must be prepared to accept some under-performance. If one is prepared to lower the quality standards a bit, then there are a host of other contenders which may offer better performance.