Top 10 stocks whose profit more than doubled ina000003197
If you report results which surpass analyst expectations of on continuous basis rest assured that D-Street will reward you. The March quarter results for India Inc. did not disappoint D-Street much, in fact in some cases it was better than expectations.
India Inc. reported steady progress in revenue and net profit growth for the quarter ended March 31. A sample of top ten companies whose net profit more than doubled on a year-on-year (YoY) basis for the quarter ended March 2017 outperformed benchmark index returns.
The companies which saw its profit doubling in the last one year gave return up to 313 percent in the last one year which include names like Escorts, MOSL, Capline, Sundaram Fasteners, GNFC, Sunteck Realty, Dewan Hosuing etc. among others.
Almost 43 companies saw their profit doubling for the quarter ended March 31 compared to corresponding quarter of last fiscal. Investors have not missed the opportunity in spotting these multibagger bets.
The aggregate net profit of a sample of nearly 1,900 companies excluding banks, finance, oil and gas companies, reported 14.5 percent year-on-year growth in net profit, said a report.
“It was the third consecutive quarter of double-digit growth. Profit growth has been gradually rising in the last three quarters,” it said.
Investors were ready to lap up shares in companies which outperformed analysts’ expectations for the quarter ended March and show earnings visibility which will be the next big factor to lead rally in markets.
Net profit growth is just one parameter which one can look at, but investors should not just rely on one methodology. Apart from net profit growth, they should also focus on EV/EBITDA and Price to Book etc. among others.
“Many elements of income statement could influence PAT, and most of them are one-time, such as Exceptional Gain, sudden rise in ‘Other Non-Operating Income’, tax concession, etc. Therefore, it is better to look EBIT level performance,” Tushar Pendharkar, Head of Research, Right Horizons Investment Advisory Services told Bonaz Capital
“Rather than looking at one parameter, I would suggest to look at other parameters such as EV/EBITDA and Price to Book, because these two parameters check valuation on EBITDA and Book Value level, and thus will reduce dependency over PAT,” he said. ina000003197
The Nifty has delivered 17 percent returns in YTD CY17, led by confluence of positive factors, namely strong liquidity, progress on GST, prediction of normal monsoon, BJP’s strong performance in UP, and less than feared impact of demonetization.
“At current trailing P/E of 22.4x and forward P/E of 19x, we see limited triggers for further re-rating, unless accompanied by earnings revival,” Motilal Oswal said in a report.
“We prefer stocks with earnings visibility, pricing power and operating catalysts. Our top ideas include: Yes Bank, ICICI Bank, Tata Motors, Maruti, ITC, Britannia, Aurobindo Pharma, ONGC, Coal India, Hindalco, Amara Raja, and JK Cements,” it said.
What should investors do?
Just following one valuation parameter might not be the right methodology to buy or sell stocks. If the stock looks expensive on multiple parameters, it will be better to book some profits, suggest experts.
“It depends on the investor’s investment horizon, what they should do with the stock. We are of the view that the best way to earn high returns is by holding stocks for a long term. However having said that, if a stock has doubled, it is always prudent to book some profits and hold on to the rest,” Nitasha Shankar, Senior Vice President and Head – Research, YES Securities (I) Ltd told bonaz capital.
“Stock specific — we expect Future Retail to grow its sales at a CAGR of ~ 49% over FY16 to FY19 led largely by the expansion in number of stores and EBITDA margins to improve from 1.2% in FY16 to 4.3% in FY19. We have recommended the stock to our clients and continue to maintain a positive view on the same,” said Shankar.
Investor’s action will also depend on which stage of the rally they entered in the stock. If the stock was bought in the early stage then the risk-to-reward equation will still be preferable.
If investor after doing due diligence had bought these shares for the long term and the stock’s recent performance is in line or better than his expectations, he can continue to hold, suggest experts.
Deepak Jasani, Head – Retail Research, HDFC Securities said that if the investor entered quite early, then he can continue to hold (with some mental stop loss for partial booking of profits) and hope for further rerating of these stocks.
“In case he has entered late towards the end of the up run, then he may book a big portion of his gains and make the balance small holding free of cost. If the scrips continue to rise, he will participate to a smaller extent in terms of number of shares,” he said.