In July 2014, I reported about Daljeet Kohli being bullish on Sharon Bio-Medicine. Daljeet had recommended a “strong buy” on the premise that Sharon is poised for “very strong growth” going ahead which would lead to “doubling of profits” over the next couple of years.
A Random Walk Down Wall Street – The Time-Tested Strategy for Successful Investing
To everyone’s pleasant surprise, the “conservative” target of Rs. 74 that Daljeet had set out for Sharon was achieved by it in a record 30 days, giving fabulous gains of 40%.
Now, enthused by Sharon’s performance, Daljeet has taken another close look at Sharon Bio-Medicine to decide whether more gains are in the offing.
In his latest research report, Daljeet has upped the target price to a “conservative” Rs. 140, which is a whopping 92% from the CMP of Rs. 73.
Daljeet has pointed out that Sharon’s change in revenue mix in favor of higher share of formulations has led to higher margins. He explains that if the company is able to just change the revenue mix in favor of formulations from the current 70:30 in terms of API: Formulation to 50: 50 by FY16 June, then the company has ability to more than double its bottom line over FY14 levels with just 20% CAGR top line growth & only 100 bps increase each year on EBITDA margin. He has also highlighted that these estimates are on the conservative side & have potential to be revised upwards.
Daljeet has struck a bullish note by emphasizing that “on a conservative note”, he has valued Sharon at 10x FY16E earnings to arrive at the target price of Rs 140 and that the company has “lot more potential to deliver”.
This reco reminds me as the markets are heading for buble or extreme euphoria. The stock recos on this blog in the beginning of this year started recommending stock for price increase of 10-20%. In the rally, when this 10-20% was easily achievable, recos came for 30-40% rise in price. When this is also met easily on the back of indices hitting all time highs, recos came for 40-80% growth. Now latest recos are talking about 90% to 200% almost doubling or trebling the prices.
One many note an interesting tendency: No one on this blog are now recommending 10-20% growth stocks. 10% rise seems is not big deal for anyone on the street now. Everyone talking some unknown small caps rising 100+% . While we respect the market, blue chip stocks like HCL Tech, TCS or TATA MOTROS which has a growth of 40% has not doubled their prices yet.
This is a dangerous trend and a big trap. While I understand investor should be cautious but analyst community should shoulder certain responsibilities and morals/ethics before giving new targets on higher side for the same stock each month.