At this juncture, the stock is surely overvalued (at least to me) and I won’t have the courage to top up on it. In any case, I have a decent sized holding and I’m very comfortable holding on to it, even if the valuation goes higher.
Where the market participants take the valuation of the stock is anybody’s guess. Even when I entered the stock it wasn’t cheap per se. I entered ~4-5 months back when it was trading at a PE of 35-36. However, I figured the company is placed very nicely on the growth front with sales, margins, profits and return ratios set to grow/improve meaningfully. Add to it the EPR revenues that flow directly to the PBT without an additional rupee being spent in expenses by the company. Furthermore, the company is experiencing some amazing macro tailwinds (thanks to the aggressive road construction/infra development taking place in the country). And lastly the modern themes of ESG investing, eco friendly companies focused on recycling etc. warranting more attention made it a no-brainer for me.
On the valuation front, my math was simple. The company was poised to grow its topline by ~35% + CAGR over a 3-year period with margin expansion leading to faster profit growth and improving return ratios. With all the other pointers and tailwinds mentioned above my thought was it trades at a PEG ratio of ~0.70-0.85 and that to me was acceptable as I would double my money in under 3 years (assuming everything falls in place). That the market has re-rated the company to a higher multiple is just a pleasant surprise. Who knows it may be even more irrational and take it to higher multiples.
For the time being, I’ll continue to hold it and keep monitoring the company’s business performance and the stocks valuation to decide further course of action.
Disc: Invested as a tactical 3 year bet. 3rd largest holding in the pf.
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