Beware of glossy stock predictions
Here it one such glossy stock prediction coming from a guy who has cult following on internet and whose recommendation have hit upper circuits after mentions on his blog
Now let us dissect the recommendation
Generic statements, a promise that Mr.Modi’s new government can be a game changer for sector, good to know that the market opportunity / scale is huge
There could be valid reasons why Asian Granito has always traded below par to above companies but this not explored. Well the real reason is Asian Granito has been reporting consistent decline in earnings compared to above companies which have been doing fantastically well, but that doesn’t fit into story so the author chooses to ignore this, Have a look at profits in below chart
Trading at less than 10 PE , not able to find reason ??? the reason is very simple even if someone had bothered to look at even basic figure of net profits for Kajaria and compared that with Asian, Here it is for your reference
Turnover has increased for both companies, however one look at net profit and you will know why share price of Kajaria has flourished and Asian Granito has declined
Some more assumptions with no facts
The balance sheet for year 2014 is not available but from 2009 to 2013 the marketing expense has not increased substantially and as percentage of sales it has gone down considerably , where is the aggresive market expenditure shown on books?
Now comes second sales pitch – capacity expansion, Alright the production capacity has been increased, so what the net profit margins have been going down year on year. Product innovation is a good point, I am no industry insider so can’t comment on this.
Export is 23 crores on 750 crore sales which is less than 5% of total sales, Can it have material impact to fortunes of company ? at least in next 2-3 years ?
When you have lower the bases the percentage jump is bound to be more than other players in sector.
The management has not done a very great job of earnings enterprising profits till date for core business, I don’t have a crystal ball that can predict how the latest diversification will work out. Without details of acquisition as the annual report is still not out it will be futile to say that there could be value unlocking.
There is a reason why markets have beaten down this company below IPO price, there are no fact in the above recommendations to arrive at a conclusion of a strong buy.
How have long term investors fared in Asian Granito till now
Post this recommendation the stock is currently trading at CMP of INR 99 , the public would be rejoicing at another jewel unearthed. But remember operator managed counters like above can easily lose 90% of market value in no time.
I have seen innocent retail buyers losing their entire capital on such fanciful recommendations
Buyers be aware, please research carefully before investing 🙂