Undoubtably the share price has fallen by more than 50 percent in last few months, and there may be some message market is giving we are not able to understand. Nevertheless, the fall is after a rise of 10 times in a very short span of time, from around INR 40 IPO price to more than 400 in around 6 months. Sharp falls do occur after sharp rise in any stock. We can find many stocks in the market, even in high Mcap category which has fallen by 50 percent in the same time. It doesn’t mean that something is drastically wrong, though it is possible.
Let us take a fresh look;
- The company did 80 Crores topline with good margin last year. The company is growing at a very high rate for last 3-4 years.
- Management has guided 100 percent growth rate for next couple of years. Let us presume it can grow at @ 50 percent.
- As the topline is increasing at fast pace, working capital requirement goes up. This, cash flow from operating activity is likely to be negative.
- Management has subscribed rights at Rs. 175 per share. Many retail investors didn’t apply, and still the issue was fully subscribed. Looks like management or large shareholders applied for more.
- Even at 50 percent growth, the company is likely to report a topline of 120 crores, with 10 crores of net profit; eps of around 12.
- Thus at today’s price, the stock is available at 18 times current year earning. For a company growing @ 50 percent, the stocks look not stretched.
Thus the stock is reaching a level where value investors will start finding something, if nothing is fundamentally wrong with the company. Let us see what happens.
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