From Dr. Vijay’s Blog
KSE Limited has been growing its sales at a decent pace of 15-20% year on year since last 10 years (FY2005-14). However, profitability of the company is very low. Operating profit margins (OPM) are barely 2-4% and net profit margins (NPM) are in the range of 1-2%. Moreover, profitability margins (both OPM & NPM) have been fluctuating wildly in the past.
Such low fluctuating margins are usually found in trading companies, which have very low pricing power with the customers. They are not able to pass on the increased cost of their raw materials to customers and thereby suffer in terms of low profitability.
An investor needs to be wary as companies with low profitability turn to losses very soon, in tough business environments.
I think all these concerns are very much valid and these are now showing up in the Quarterly result of the company due to which prices are going down.
Discl: Not Invested
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