When you are thinking of buying a stock like Cera Sanitaryware, you must never look at the past price history. Why? Because you will be wrongly dissuaded.
Cera has, over three years (01.04.2011), given its lucky shareholders a return of 465%. In the last one year itself, the stock has doubled.
So, if you look at the price history, you will never muster the courage to buy the stock. Instead, the better way to evaluate these stocks is to look at their market capitalization in relation to the size of the opportunity.
In that sense, Cera’s market capitalization is “only” Rs. 1,000 + crore. It is still a “small cap” stock with a long way to go given its powerful brand image, marketing muscle, ambitious management and the size of this country and its’ affluent middle class population.
For such powerhouse stocks, the fact that the stock price has already doubled or tripled or even quadrupled should not be a determining factor. We must remember the sage words of Basant Maheshwari that the fact that a stock has gone up so much does not mean that it cannot go up further. This advice was given when he recommended Page Industries as a buy in July 2011 when Page was quoting at Rs. 2000. Today, at the CMP of Rs. 5800, Page is still a great buy given its powerful brand and market dominance.
The other thing that will give you confidence is the quality of the investors that the stock has attracted. Cera Sanitaryware can boast of an impeccable list of top-quality investors like Westbridge Capital (aka Jwalamukhi Investment Holdings, 11.22L shares worth Rs. 103 crore), Nalanda Capital (3.48L shares, Vijay Kedia (3.15L shares) and Dolly Khanna (1.44L shares). Nalanda also recently increased its stake.
We know from past experience that these savvy investors don’t back dud stocks. They hold concentrated portfolios and do thorough due diligence before trusting a stock with their funds. And when all the savvy investors get together in a particular stock, then you know you are in for a good thing (Check out AIA Engineering – it also has a large conglomeration of savvy investors in it).
Here, you must also remember Prof. Sanjay Bakshi’s analysis of how, when you buy quality stocks, even at a high cost, you end up a winner in the long run.
You can also view a video of Cera Sanitaryware which will help you to come to grips with the management’s vision. Also, you can see the confident statement of S. C. Kothari, CEO of Cera, where he assures that there will be a 30% revenue growth in 2015.
Cera Sanitaryware has announced a strong set of Q4FY14 results. Twinkle Gosar of Angel Broking has analyzed the results in detail and recommended that investors should accumulate the stock for a target price of Rs. 934.
Personally, I think the advice to accumulate the stock slowly and steadily is very sensible. I have been nibbling on the stock regularly for the past couple of years and it has now grown into a sizeable chunk. I find that it is mentally easier to buy small quantities of these so-called high P/E stocks rather than to buy a big chunk at one time. And if you do it systematically over long periods of time, you end up with a nice big chunk in your portfolio.