Posts tagged Value Pickr
IDFC First Bank Limited (25-07-2022)
CASA is usually very sticky. It’s hard to shift substantial sums for 1/2% delta in interest rates. In past too when IDFC FB reduced rates, the CASA barely moved.
Grauer and Weil Limited- 101 out of 100? (25-07-2022)
Thank you Praveen. You saved me a lot of effort.
When Not To Buy (25-07-2022)
Before buying any company, I must check my default check list.Apart from that even if all the check lists are satisfied,the most important thing I should not ignore is “valuation”.Remember that a company may be a good one since last 15 years or it might remain excellent for next 20 years.But its stock price will not be good in between this time period, from a buyer’s point of view.Stock prices oscillate in between cheap and expensive and I need to buy a good business in cheap or fair valuation.Sometime the stock price may not come to my calculated valuation and for years and I might have to sit with cash.It is okay if I sit with cash.But I need that margin of safety so that if the stock I purchased do not rise ,then also I can sit with mental peace.A good purchase price provides me that mental peace.
Scenario-1
Often you might be hearing this in business news channels that a particular stock is corrected 40% from its 52 week high and looks attractive.If the business is not worth investing,then there is no point in calculating the valuation of the stock.It does not matter how much % the stock is corrected from its top.I just don’t understand the logic behind it.TCS…no doubt …it is a good company… as on 19.07.2022…its stock price is Rs.3074/- and its all time high was Rs.4043/- .So,it means as on date the stock is corrected 32% from its all time high. Now TV channels are telling that TCS looks attractive.
Give me a break…
Look at its current market cap …its 11.21 Lakh crore …so at its all time high its market cap was 14.79 Lakh crore.
Even if you buy TCS at current price …if you think to make your money double in TCS ,then its market cap needs to be 22.42 Lakh crore.Lets say its earnings will justify its stock price ,then its current EPS (i.e. Earnings per share) i.e. Rs. 104 need to be doubled i.e. Rs.208. TCS has nearly 22% margin.So in order to make EPS double ,its revenue needs to be doubled i.e. from 1.95 lakh crore to 3.9 lakh crore.Lets say it will happen over next 5 years it means its revenue needs to be grown at 14% .But its revenue is growing at 5.71% since last 5 years.So if the whole IT industry will grow at 15% for next 5 years ,then it will cross India’s GDP perhaps.Again what other IT companies will do ? TCS is not the only company in this planet.Perhaps it need to go to the Mars for getting projects.
currently TCS is available at 30 PE multiple.Its growing at 5% and PE is at 30.It does not make sense.
Two things can happen…
1st… its stock price may stay there constant as it is for several years and gradually its earnings will increase slowly and justify its price.In this case you will not loose money in paper.But you will get -ve 6% yearly because in India inflation is around 6% minimum.
2nd…its stock price will collapse because market will not give 30 times premium to a 5% growth company.Lets say if it re-rates TCS to 15 PE multiple.So you will loose 50% of your money in paper.
In both way you will loose money.
Lets say we give premium to TCS …since it can give whole EPS to shareholders …still the 30 PE and target 22.42 Lakh crore market cap in next 5 years looks insane.
I may be wrong…but I don’t want to take that much risk to make my money double.
Where we make the mistake is…we see the correction in stock price in isolation.
But we need to see the following things in together
- Current market cap of the company
- Current Price to earning multiple.
- How much headroom is there for the market cap to go up (considering the profit growth).
- What % of the EPS, the company can give to shareholders as dividend without affecting its business.
Scenario-2
Often we take the wrong reference point to evaluate the companies in different situations.I consider these as false indicators.Some of these examples are.
Bank deposit interest rate during COVID pandemic is very low …say 3.5%.So, if TATA Power is available at 4% dividend yield,then we should buy its stocks.PSUs are available at 5% dividend yield ,so we should buy them.These are all wrong metrics which seems right in extra ordinary situations.You need to ask yourself, that whether you want to own the businesses like TATA Power and PSUs.If not then it just does not matter in what dividend yield these stocks are available.If the business is an investment grade and headroom for multiple year growth is available and stock is available at 5% dividend yield and low PE ,then it makes a perfect buy.But you need to consider all the parameters together.Remember you invest in a business for growth in earnings not for dividend yield only.
When interest rates are low,even the companies with 5% earnings growth ,available at 40 PE will attract you.This is a perfect illusion, as you are taking only the interest rates as the bench mark for calculating the valuation and ignoring the inflation completely.As per simple economics, interest rates should beat inflation and at present in INDIA ,it is not beating the inflation.So ,your mind will tell you that its ok to buy the stock at 40 PE since interest rate is very low.Remember that ,what is important is the "sustainability of growth in the prices of your stocks " .This is the whole point for which you are investing in stocks and this can only be justified by growth in the earnings of the company.But if you are justifying the growth in stock prices due to low interest rates,then it is nothing else just a bubble.
At present some of the good companies are available at insane PE & Market cap.
Example- TCS,Infosys,D-mart,TITAN etc…
https://themangoinvestor.blogspot.com/2022/07/when-not-to-buy.html
When Not To Buy (25-07-2022)
Before buying any company, I must check my default check list.Apart from that even if all the check lists are satisfied,the most important thing I should not ignore is “valuation”.Remember that a company may be a good one since last 15 years or it might remain excellent for next 20 years.But its stock price will not be good in between this time period, from a buyer’s point of view.Stock prices oscillate in between cheap and expensive and I need to buy a good business in cheap or fair valuation.Sometime the stock price may not come to my calculated valuation and for years and I might have to sit with cash.It is okay if I sit with cash.But I need that margin of safety so that if the stock I purchased do not rise ,then also I can sit with mental peace.A good purchase price provides me that mental peace.
Scenario-1
Often you might be hearing this in business news channels that a particular stock is corrected 40% from its 52 week high and looks attractive.If the business is not worth investing,then there is no point in calculating the valuation of the stock.It does not matter how much % the stock is corrected from its top.I just don’t understand the logic behind it.TCS…no doubt …it is a good company… as on 19.07.2022…its stock price is Rs.3074/- and its all time high was Rs.4043/- .So,it means as on date the stock is corrected 32% from its all time high. Now TV channels are telling that TCS looks attractive.
Give me a break…
Look at its current market cap …its 11.21 Lakh crore …so at its all time high its market cap was 14.79 Lakh crore.
Even if you buy TCS at current price …if you think to make your money double in TCS ,then its market cap needs to be 22.42 Lakh crore.Lets say its earnings will justify its stock price ,then its current EPS (i.e. Earnings per share) i.e. Rs. 104 need to be doubled i.e. Rs.208. TCS has nearly 22% margin.So in order to make EPS double ,its revenue needs to be doubled i.e. from 1.95 lakh crore to 3.9 lakh crore.Lets say it will happen over next 5 years it means its revenue needs to be grown at 14% .But its revenue is growing at 5.71% since last 5 years.So if the whole IT industry will grow at 15% for next 5 years ,then it will cross India’s GDP perhaps.Again what other IT companies will do ? TCS is not the only company in this planet.Perhaps it need to go to the Mars for getting projects.
currently TCS is available at 30 PE multiple.Its growing at 5% and PE is at 30.It does not make sense.
Two things can happen…
1st… its stock price may stay there constant as it is for several years and gradually its earnings will increase slowly and justify its price.In this case you will not loose money in paper.But you will get -ve 6% yearly because in India inflation is around 6% minimum.
2nd…its stock price will collapse because market will not give 30 times premium to a 5% growth company.Lets say if it re-rates TCS to 15 PE multiple.So you will loose 50% of your money in paper.
In both way you will loose money.
Lets say we give premium to TCS …since it can give whole EPS to shareholders …still the 30 PE and target 22.42 Lakh crore market cap in next 5 years looks insane.
I may be wrong…but I don’t want to take that much risk to make my money double.
Where we make the mistake is…we see the correction in stock price in isolation.
But we need to see the following things in together
- Current market cap of the company
- Current Price to earning multiple.
- How much headroom is there for the market cap to go up (considering the profit growth).
- What % of the EPS, the company can give to shareholders as dividend without affecting its business.
Scenario-2
Often we take the wrong reference point to evaluate the companies in different situations.I consider these as false indicators.Some of these examples are.
Bank deposit interest rate during COVID pandemic is very low …say 3.5%.So, if TATA Power is available at 4% dividend yield,then we should buy its stocks.PSUs are available at 5% dividend yield ,so we should buy them.These are all wrong metrics which seems right in extra ordinary situations.You need to ask yourself, that whether you want to own the businesses like TATA Power and PSUs.If not then it just does not matter in what dividend yield these stocks are available.If the business is an investment grade and headroom for multiple year growth is available and stock is available at 5% dividend yield and low PE ,then it makes a perfect buy.But you need to consider all the parameters together.Remember you invest in a business for growth in earnings not for dividend yield only.
When interest rates are low,even the companies with 5% earnings growth ,available at 40 PE will attract you.This is a perfect illusion, as you are taking only the interest rates as the bench mark for calculating the valuation and ignoring the inflation completely.As per simple economics, interest rates should beat inflation and at present in INDIA ,it is not beating the inflation.So ,your mind will tell you that its ok to buy the stock at 40 PE since interest rate is very low.Remember that ,what is important is the "sustainability of growth in the prices of your stocks " .This is the whole point for which you are investing in stocks and this can only be justified by growth in the earnings of the company.But if you are justifying the growth in stock prices due to low interest rates,then it is nothing else just a bubble.
At present some of the good companies are available at insane PE & Market cap.
Example- TCS,Infosys,D-mart,TITAN etc…
https://themangoinvestor.blogspot.com/2022/07/when-not-to-buy.html
Mangalam Organics Ltd. – A promising Pine chemistry story (25-07-2022)
A new CS is in place - "at the Meeting of Board of Directors of the Company held today i.e. June 29, 2022, the Board has considered and approved the appointment of Ms. Shachi Sanghavi, a Member of the Institute of Company Secretaries of India holding Membership No. A65080, as a Company Secretary and Compliance Officer w.e.f. June 29, 2022 ". But that’s unlikely to change the response.
My Check List for Buying a Company (25-07-2022)
There is already a similar Topic - Checklist I go through before I buy any stock - can you just post this there and avoid duplication?
My Check List for Buying a Company (25-07-2022)
- Must not be a loss making company.
- Must not be a PSU.
- Must be able to remain profitable for next 15-20 years to come.
- Must have zero or very low debt.
- Must not be a capital intensive business.
- Its Product and services must have competitive advantages i.e. 10x better than its competitors.
- It must be very difficult to copy its business by any other company.
- Value migration must not be happening or to going be happened in its business in next 10-15 years.
- Technological or habitual disruption factor should not be there.
- Customer loyalty must be there in the products/services offered by the firm (by force or choice )
- Entry Barrier must be there in the business so that other companies can’t take over its business or take its future business opportunities.
- Pricing power must be there with the company for its products or services i.e. the company must have dominance over its customer,distributor,retailer
- There must be sufficient head room to grow its business.
- The company must have the ability to throw cash to the share holders (may be in a longer period of time)
- Must be professionally run company.If it is 1st or 2nd generation company,then 1 or 2 family members of the promoter in the board is okay.
- All the key positions in the company should not be held by family members.
- The company should be such that ,any idiot can run it.
- Management should be good at capital allocation.
- Stock must be available at good valuation.
- If FIIs/DIIs have less holding,then it is better.
Its a learning process …and will be refined over time.https://themangoinvestor.blogspot.com/2022/07/my-check-list-for-buying-company.html