Based on my own experience over several years of investing in small caps, I’d argue that one should be very careful with optimism on stocks where multiples have run way ahead of their earnings which is the case with Va Tech Bag where stock is now 3x its historical valuations.
That’s already too much premium factored in by the market based on all the potential positives including the ones you have mentioned.
Forecasting certain growth numbers for a company is full of risks. It doesn’t work for established players, let alone smaller companies. You can have regulatory changes, technological disruptions, competitive threats etc that can swing ratings either way for a stock. While we mostly think about the upsides, downsides is what one should be careful of and having a good margin of safety is what will protect one’s portfolio from potential downside.
We all have seen or heard about retail investors chasing great narratives and growth forecasts in PSU defense, railways and oil and gas stocks as well as new age stocks at crazy valuations with not so happy consequences. And this all happened in the middle of institutions still buying into these stories, launching new fund offers etc.
P.S.- This is not to say that Va Tech is not a good company. But as they say in investing, good company always doesn’t translate into a good stock and vice-versa. I have seen people holding Dmart, a highly promising story in 2021 disrupted by quick commerce, for last 3 years without any return. Doesnt make Dmart a bad company though, but those hoping for similar returns as stock gave in preceding years have been disappointed, having fallen on the wrong side of valuations.
| Subscribe To Our Free Newsletter |
