I am of the opinion that, businesses like Asian Paints, Nestle, HUL are relatively simple businesses to understand, and Market gives them high valuations for slow but consistent Sales Growth, High ROCE.
Market mostly ignores their slow EPS growth as it like consistent players.
Probably Mr. Market looks for the following:
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Have they faced tough competition in the past and Have they still survived and still growing ?
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How is the Management Quality of these businesses ? Are there any wrong doings in the past or do they have good quality managements ?
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Can they scale up further from here either organically or inorganically to maintain their slow and consistent Sales growth while maintaining ROCE above Cost of Capital ?
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Can you recollect their Brands ? Will people buy their brands at least for next 10 Years ?
That does not means that Mr. Market completely ignores their current slow EPS growth but Mr. Market gives much higher weightage to their consistency.
There will be periods of No Returns for these stocks and There will be periods of more than 15% CAGR returns in Stock Price. It depends on various factors and investor’s buy price.
If an investor finds better opportunities else where at higher risk, and they are willing to take higher risk, they will not buy any of these stocks. These stocks are suitable for only few investors which prefer slow and steady businesses in their portfolio.
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