Barely three weeks ago, I reported in my usual diligent manner that TCPL Packaging, a micro-cap which has won the confidence of four eminent stock wizards, Ramesh Damani, Dolly Khanna, Vijay Kedia and Anil Kumar Goel, has been short-listed by Sharekhan as having the potential to shower hefty gains on its shareholders.
Today, I am happy to report that Sharekhan was perfectly correct in its prediction. TCPL Packaging has indeed given spectacular gains of 38% in the four weeks since the recommendation. This works to an astronomical annualized gain of 456%.
However, the result of these quick-fire gains is that Sharekhan has now developed cold feet.
In its latest report, Sharekhan has claimed that after the sharp surge, the “positives are priced in” and that the valuations are “capping any significant upside from the current level”. Sharekhan has advised investors to “book profit”.
As usual, Sharekhan’s analysis is crisp and to the point:
“- TCPL Packaging (TCPL) stock price has run-up by 38% in the past one month on the back of strong operating performance in FY2016 and improving growth prospects for the paper packaging industry in the long run. Revenues grew by 19% YoY (largely driven by strong double-digit volume growth) and the operating profit grew by 23% YoY in FY2016. Being one of the largest packaging players, TCPL would achieve strong double-digit revenue growth (largely volume driven) in the near to medium term on the back of improvement in consumer demand, growing e-retailing business and emergence of new players in the FMCG sector.
– In addition to operating efficiencies, improvement in working capital will remain a key focus area for TCPL in the coming years. With no major capex planned, TCPL would also see improvement in cash flows and strong return ratios in the coming years.
– However, the recent sharp run-up in TCPL’s stock price (38% since our viewpoint on May 23, 2016) have priced in all the above positives. We believe that the current valuation of TCPL at 10x FY2018 earnings is fair, capping any significant upside from the current level. Hence, we recommend our investors to take home handsome gains within short span and wait for a better point to re-enter the stock.”
Now, the difficult decision that each one of us has to take is whether we want to partner the wizards for the long haul or encash the gains!