The reason last 10 year sales and profit look low is because of slowdown in chemical sector since 2021 and every company of repute (e.g. Pidilite, SRF, Deepak Nitrate) has suffered. So if you remove the last three years of performance, metrics will look different.
Same goes for P/E which looks high because of earning declines.
One shouldn’t solely go by P/E which to start with can be a misleading indicator for cyclical businesses. You won’t find seasoned and experienced investors relying on it. In fact in an interview Sajal Kapoor called P/E as “most thakela” valuation metric. If you look at price to sales, EV/EBITDA, free cash flow to sales, as well historical averages, Aarti looks much better placed than its peers.
As for promoters selling stakes, I can name hundreds of good companies where promoters have reduced the stakes. It doesn’t mean anything unless the reduction is alarming which is not the case for Aarti (just 1.5% reduction in promoter holding in 10 years).
Investing in a stock can’t be boiled down to simple metrics like P/E or 10 years growth or promoter stakes. By that logic even Infosys will look like a bad investment.
Every company and industry will go through downturn. One needs to bet on the businesses run by competent people with proven track records. That to me is the most important aspect to look. When cycle improves (Which it will invariably), good companies will get rerated and deliver handsome returns.
| Subscribe To Our Free Newsletter |
