How do we establish if these numbers being reported by management and their commentary is for real? And if they are for real how much of the narrative is sustainable or already in the price?
Their revenue and earning performance before 2020 are nothing to write home about, being flat for 6-8 years. Sudden 10x increase in revenue and PAT, in just 3 years, should lead to even more due diligence. If their business just caught the sectoral tailwind then is this remarkable turnaround in their financial performance sustainable? Can they withstand next downturn cycle which is typical of commodity stocks?
They make the same products as other dozens of listed players. Operating margins are much lower than peer group and they only went up due to higher top line growth. Valuations already look very stretched, compared to industry and peer group average, and that too at the top of bull run. Main promoters have sold quite a lot of shares in the last quarter (good timing before 34% correction).
I have been following steel tube/pipe industry for quite some time and every time sector goes through a bull run, it seems permanent what with exciting order flows and feel good factor all around… But I have realized that only thing permanent with this sector is cyclicality and reversion to mean of stock prices. It’s very important to time entry and exit to make profit and avoid getting stuck in a downcycle for a very long time.
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