Each individual sell decision merits its own specific industry/business cross-examination, let me share some generic insights from my little experience base – perhaps some of these may resonate with others as well. Markets are inherently forward looking – even in bear markets. So 1-year forward is the base rate. In bull markets like current, 2-year forwards become the optimistic norm – such as what we are experiencing now for most businesses. I have seen I don’t get too worried when valuations are within 2-year forwards. When valuations exceed 2-year forwards and start approaching 3-year forwards, I will find myself uncomfortable and perhaps sell.
Forward PE of Trent Ltd for next 5 year –
Current Share Price: ₹5,835.45 (as of July 31, 2024)
Current EPS: ₹40.39
Assumptions for Future EPS Growth
Given that Trent Ltd. has demonstrated strong earnings growth, we can use the historical growth rates to project future EPS. The company has shown an average earnings growth rate of approximately 60.8% per year over the past few years . For our calculations, we can assume a conservative growth rate of 40% for the next few years, considering market conditions may vary.
Using the assumed growth rate of 40% for the next five years, we can calculate the projected EPS for each year as follows:
- Year
- EPS = Current EPS × (1 + Growth Rate)
- EPS = ₹40.39 × (1 + 0.40) = ₹40.39 × 1.40 = ₹56.55
- Next 4 years- Similarly year 2,3,4 and 5th EPS is projected as ₹79.17,₹110.83,₹155.16 and ₹217.22
Forward P/E Calculation- Year 1: 103.93,Year 2: 73.66,Year 3: 52.63,Year 4: 37.56,Year 5: 26.87
What I have seen is as long as the growth keeps coming, the stock price does not correct much. We saw this in many many cases, Astral, Mayur, Poly Med etc.… At most the correction is 10-15% due to extraneous factors. The business looks overvalued, but the business growth is intact. So, the idea then is to not second guess the market. I don’t know if 200+ PE is high or low. The market may decide to give it 200+PE, like it did to Infosys at one time. The approach, I am contemplating is because I am 100+x up, I will put a trailing stop say 30% below the high price I have seen. If my thesis is correct, it will not correct that much from the recent top, but reverse and continue it’s upward journey. And I will keep revisiting my stop upwards to that 30% mark.
The only practical problem with this approach that I may come across is what to do when the stock just flat lines and does nothing. Like PI some time back. Then the SELL decision may be based on my understanding of their next 2-3 year growth prospect. My knowledge is very limited and I am biased so Please Comment on my thinking direction. Disclosure-Please note there is no buy and sell recommendation on any the stocks mentioned above. I am invested in Trent for 20+ years
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