I still cannot understand your grouse against Usha Martin except for the run up in prices and the valuations… Regarding benefit of doubt, what is the doubt regarding this business? Valuations is something given by markets, which is a collective wisdom of a lot of market participants.
And this ML and AI and IT companies comparision is not apple to apple comparision.
I suggest you attempt to answer the questions I put up and you will understand the transformation this company has gone through. And this transformation in business has been well received by investors and there is a change in perception towards the company.
There was a similar situation in case of Ajanta Pharma, back in 2010-11 when it used to quote at 5-7 PE for nearly 3-4 quarters inspite of consistently reporting 25-35% CAGR in profits. And once perception changed, stock went up 60 times in a matter of hardly 4 years and stock used to quote at 35 PE… That’s how markets work and that’s how multibaggers happen.
Idea should be to learn how multibaggers evolve and have an open mind without any pre conceived notions of our own.
Usha as of now might be richly valued, but when perception regarding a company changes, valuations can sustain high levels as long as growth continues, and promise of further growth is visible.
The key determinants of high PE being accorded to any company are
- Opportunity size. this provides run way for growth.
- Scalability. Here execution of management comes into play.
- Balance sheet and return ratios.
- Management quality.
- Competitive advantage.
There may be more factors at play for above PE equation, but these are the ones that immediately come to mind.
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