This point is bang on! These metrics are helpful to identify trend when seen over long periods but a specific year’s can be misleading to a base a decision on. The example on Bhansali – FY22 profitability was extremely high due to increased pent up demand post COVID washout in FY21 with low input costs but this company is in a commodity business so margins took a big hit due to inflation in FY23. I expect the stock to languish a bit this year until inputs prices stabilize and Bhansali can make up some margins.
To understand future earning potential, we have to listen to management commentary and growth updates on concalls and AGMs to see what they guide and what they achieve down the line compared to that guidance. Do this across other companies in the same business and we will get an understanding of the sector. Then we can judge future prospects with some confidence. I have found Dr. Vijay Malik’s blog very useful for this sector level understanding Simple steps to learn Stock Analysis – Dr Vijay Malik
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