One assumption in this debate is that the price of Usha Martin in 2020 was “fair”. The other assumption is that the p/e rerating should happen at the exact rate as growth.
But p/e is awarded by market on expectation of future growth and it often goes to stratospheric levels till the expected growth materialises before inevitably turning into a consistent compounder or tumbling back to its historical p/e.
Usha Martin made a transition from a company that was valued according to the commodity cycle to a company that makes value added products. Plus the cleaning up of debt allowed for market to be more optimistic. One thing I’ve learnt is that if a stock has gone 5 times it does not mean it can’t go up 5 times more. The irrationality of the market is the only way money is made. More often that not, the market takes it to 20 times and then retail investors who are gullible enter and then it falls 50 percent.
Whether to invest in Usha Martin at current levels is a matter of personal evaluation but it doesn’t really make sense to question why it has gone up so much.
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