With commodity stocks one needs to be be careful about their peak earning and margin performances as during that time valuations look attractive due to low p/e but that’s often followed by steep correction as commodity cycle reverses.
A good way to evaluate commodity stocks is to look at their historical price trend, valuations and margins. Generally such stocks have a continuous cycle of rerating and derating. If you time them right, you will make loads of money from rerating and expanding earnings and if you get caught on the reversal, derating and shrinking margins will require a long wait for recovery.
Jindal Saw seems to be nearing its peak earning (highest ever in its history) and margin (also highest ever) levels. P/E is also around it’s historical average. Stock has already given 6x move in last 1.5 years and still cheap because of last few tremendous quarters where earning growth has kept pace with price moves.
That said Jindal Saw is a good company and sector is enjoying a structural tailwind, which makes it interesting to see how much more juice is left in the stock. But I believe risk reward at this stage doesn’t look very favorable.
Disc- Invested from 110 level in 2021 and incrementally booking profits around 450 levels.
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