E2E is not a company that is to be judged or invested in based on screening filters. This is evident by the fact that this stock never got talked about much or hyped. It just didn’t meet anyone’s criteria based of its unique circumstances and so didn’t show up on most screeners.
The PE that you are seeing is momentary. A doubling of earning would lead to halving of the ratio. The question is would that take 1 year, 2 years, 10 years? So, the discussion of it is not really from the perspective of today. E2E’s proposition is from a future perspective.
Talking about the future, anyone who does a deep dive into the company’s product and offerings, will know that this is a capex heavy business, despite the fact that the value generation happens at the software layer: the custom software the comp. has been building over the past decade. It is due to this that the debt also comes into play. Tarun Dua is a not a business magnate. He’s a tech guy who happens to run an IT firm. Fiscally, he’s been pretty conservative till now. Also, the way the company pivoted from a cloud player to a AI first cloud player is understated and under-applauded, showing his firm understanding of the industry and a nose to sniff out the directions the winds are blowing.
It is due to this upcoming obscene demand stemming from AI workloads, company needs to expand quickly. The cash reserves are not sufficient and raising equity is an option, just like debt. The question is not the high/low debt. The question is whether you think the comp. will be able to pull off the large risk it is taking.
To answer that question, I turn to 3 things:
- The asset turn – which for E2E is awesome
- Whether the comp. will use the fund judiciously – to be seen. Will raise eyebrow if c-suite gets big bonus cheques this year
- whether the demand for the assets purchased (mainly GPUs) is good. – In recent concall, Dua estimated that their top GPU H100 has 90-95% capacity utilization though they have reserve GPUs and can acquire more if need on a short notice.
#1 is a number thing that is verified.
#2 is a time thing. Let’s wait and see
#3 is a trust thing. Whether you believe this statement or not.
IMO, the recent quarterly results are a good indication of what’s to come in the next few quarters. I think we’re looking at a multiple times EPS growth in the next 4-6 quarters. How that works for the valuation will be dictated by Mr. Market.
I have been invested since E2E had a 65cr market cap and still believe the company is walking the talk and will continue to hold. I am probably biased.
Disclaimer: I am invested. This is not investment advice.
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