Stocks for the long and short term portfolio
- Thread starter jamit_05
- Start date
Opto Circuit is in shambles. I have been trying to study the reasons why this sort of thing could happen.
I think the prime reason is Equity Dilution.
This one thing majorly spooks investors because when EPS takes a beating lots of ratios go out of the window... PE, Earnings Yield, Dividend Yield. Then the special factor of the company is diluted.
And let me tell you something about Equity Dilution:
I have access to last 10 years of data. I see that Cipla has not diluted even once in last 10 years. Whereas, Opto has diluted EVERY YEAR! Hence, Investors would want solid progress to see sustained Earnings Yield!
To sustain the special factor even after diluting the company has to be like Infosys, a rarity. Is must show dividend payments from FCF and not DEBT!
Opto took on more and more debt each year. And often doubling it in an year. And when you have more debt divided by more equity you have a low Debt to equity ratio! which is dangerous.
And where did this double supply of money go to?
Into acquisitions.
Lesson # 2... be suspicious of companies that are growing inorganically. Prefer ones that are growing with their profits and not from equity dilution and debt.
That is not always bad. Such companies are not always scams. All it means is that the proposition is very risky. The balance sheet is stretched. Ride is going to be bumpy. And Opto sure is bumpy.
However, I think Opto can handle it. It has a very high ROE, enough buffer and massive growth in sales revenue.
IMO, Opto is a high risk very high reward investment.
It is still showing stellar growth in sales. Very high ROE and OPM plus it is an old company. And generously gives dividends.
Then when should one invest in it?
Once it eliminates the debt! Thats my only requirement. Kill the debt. This means, money is being generated, which will eventually make promoters buyback stock. Means that the acquisitions are doing well.
Give the acquisitions a pause for a few years and get your mess in order.
Will watch its quarterlies and keep posted.
I think the prime reason is Equity Dilution.
This one thing majorly spooks investors because when EPS takes a beating lots of ratios go out of the window... PE, Earnings Yield, Dividend Yield. Then the special factor of the company is diluted.
And let me tell you something about Equity Dilution:
I have access to last 10 years of data. I see that Cipla has not diluted even once in last 10 years. Whereas, Opto has diluted EVERY YEAR! Hence, Investors would want solid progress to see sustained Earnings Yield!
To sustain the special factor even after diluting the company has to be like Infosys, a rarity. Is must show dividend payments from FCF and not DEBT!
Opto took on more and more debt each year. And often doubling it in an year. And when you have more debt divided by more equity you have a low Debt to equity ratio! which is dangerous.
And where did this double supply of money go to?
Into acquisitions.
Lesson # 2... be suspicious of companies that are growing inorganically. Prefer ones that are growing with their profits and not from equity dilution and debt.
That is not always bad. Such companies are not always scams. All it means is that the proposition is very risky. The balance sheet is stretched. Ride is going to be bumpy. And Opto sure is bumpy.
However, I think Opto can handle it. It has a very high ROE, enough buffer and massive growth in sales revenue.
IMO, Opto is a high risk very high reward investment.
It is still showing stellar growth in sales. Very high ROE and OPM plus it is an old company. And generously gives dividends.
Then when should one invest in it?
Once it eliminates the debt! Thats my only requirement. Kill the debt. This means, money is being generated, which will eventually make promoters buyback stock. Means that the acquisitions are doing well.
Give the acquisitions a pause for a few years and get your mess in order.
Will watch its quarterlies and keep posted.
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If one wants to be a stable and a long term investor that is how it should be.
I took up Opto Circuits for the sake of seeing the other side. What does a failing company looks like.
I have come to have a dislike for companies with "new" debt. They may be able to service the debt, but will they be able to pay it off in the recession? Tough job.
I took up Opto Circuits for the sake of seeing the other side. What does a failing company looks like.
I have come to have a dislike for companies with "new" debt. They may be able to service the debt, but will they be able to pay it off in the recession? Tough job.
Fixed income was a major part of my studies. New debt is not always a bad thing. You just have to keep mind on inherent stability of the business and interest coverage ratio. Ofcourse you will have to adjust all the ratios according to your own analysis, I dont use the ones given on money control. Next in case of short term debt (less than 5 years) Then you may look at working capital and interest coverage by it.
Fixed income analysis is not a find and accept analysis, you have to start with the safest bonds and keep going down from there just before the point your criteria are no longer met.
Fixed income analysis is not a find and accept analysis, you have to start with the safest bonds and keep going down from there just before the point your criteria are no longer met.
Axis Bank is falling like a rock. I wonder why so? Rumours are making rounds that Axis is badly affected by Rupee devaluation. This has increased its interest cost as Axis has funded operations from outside... External Borrowings.
Otherwise Axis is at par with SBI in terms of % Interest Expense.
This is a nice bank in a bad phase. It is all set to break its 2011 low of 803. Its 2008 low is all the way down to 300s. Is that even possible? Will have to wait to find out
Otherwise Axis is at par with SBI in terms of % Interest Expense.
This is a nice bank in a bad phase. It is all set to break its 2011 low of 803. Its 2008 low is all the way down to 300s. Is that even possible? Will have to wait to find out
Hi Amit !!
I am currently reading ur posts in this thread !! U have got a very good hold on both fundamentals and technicals !! I am enjoying reading ur posts !! Its really informative u have also very well conveyed that which fundamental or technical aspect should be seen from which angle !! What is the underlying sentiment in every news !! Appreciated !!
1) I also have shares in my portfolio taken long back in 1980's !!
I have PEL(Piramal Enterprises Ltd.) 1000 shares !!
What are the prospects of the company ?? I have searched a lot but there is hardly any news i have got about it or may be i dont know how to search it !!
This company seems very secretive in terms of their prospectus !!
So, how shall i manage these shares ?? Shall i stay or get out ??
Pls guide in this matter !!
2) Reliance is consolidating since 3 yrs !! It fell from 3000 to 700 !! It has hell lot of oil wells, gas reserves to be explored !! Now,looking at the current scenario of the crude , do u have any view about the valuation of it share price ?? Also, there is a fresh news that it is insisting the Govt. to opt and encourage inhouse exploration !!
Regards,
-Vivek
I am currently reading ur posts in this thread !! U have got a very good hold on both fundamentals and technicals !! I am enjoying reading ur posts !! Its really informative u have also very well conveyed that which fundamental or technical aspect should be seen from which angle !! What is the underlying sentiment in every news !! Appreciated !!
1) I also have shares in my portfolio taken long back in 1980's !!
I have PEL(Piramal Enterprises Ltd.) 1000 shares !!
What are the prospects of the company ?? I have searched a lot but there is hardly any news i have got about it or may be i dont know how to search it !!
This company seems very secretive in terms of their prospectus !!
So, how shall i manage these shares ?? Shall i stay or get out ??
Pls guide in this matter !!
2) Reliance is consolidating since 3 yrs !! It fell from 3000 to 700 !! It has hell lot of oil wells, gas reserves to be explored !! Now,looking at the current scenario of the crude , do u have any view about the valuation of it share price ?? Also, there is a fresh news that it is insisting the Govt. to opt and encourage inhouse exploration !!
Regards,
-Vivek
Thank you for your kind words.
1) Piramal Enterprise sold its formulation business of 22 years old to Abbott Healthcare for huge bucks (10000 Cr was it). Now it has a lots of cash. With that it is making acquisitions and making roots again. This time around he may or may not succeed.
Point being PEL does not have a solid base anymore for one to make an investment. So, I would get out of it and get into another pharma stock.
2) Reliance Industries's 2012 low is 671; It is a good company. Nice cash, zero debt, flagship company, good brand... all is good.
If one were looking for security and decent returns then he could start buying at 670 and keep buying at lower levels. No fear.
1) Piramal Enterprise sold its formulation business of 22 years old to Abbott Healthcare for huge bucks (10000 Cr was it). Now it has a lots of cash. With that it is making acquisitions and making roots again. This time around he may or may not succeed.
Point being PEL does not have a solid base anymore for one to make an investment. So, I would get out of it and get into another pharma stock.
2) Reliance Industries's 2012 low is 671; It is a good company. Nice cash, zero debt, flagship company, good brand... all is good.
If one were looking for security and decent returns then he could start buying at 670 and keep buying at lower levels. No fear.
Every investor and his investment should have a Theme. Like:
1) I invest in companies that are trading at fairly low prices AND are leaders in their sectors and hence are sure to capture the upcycle whenever it comes.
Or
2) I invest in companies that are likely to be tomorrows multi-baggers. Even if 3 out of 10 succeed, I will do alright.
Or
3) I want my investment to be safe. Super safe. And the only other thing that matters is that it should give me a return commensurate with the prevailing FD rates.
The above are some popular Themes. Every investor should do that much "Inner" work to know what he really connects with. This approach will help him in tough times. Else investment is haphazard and without a pattern.
Look into the "History of Success"... no leader, artist, sportsman, businessman or even a long standing dictator is without a Theme. Therefore, to succeed as an investor, first discover your Theme.
1) I invest in companies that are trading at fairly low prices AND are leaders in their sectors and hence are sure to capture the upcycle whenever it comes.
Or
2) I invest in companies that are likely to be tomorrows multi-baggers. Even if 3 out of 10 succeed, I will do alright.
Or
3) I want my investment to be safe. Super safe. And the only other thing that matters is that it should give me a return commensurate with the prevailing FD rates.
The above are some popular Themes. Every investor should do that much "Inner" work to know what he really connects with. This approach will help him in tough times. Else investment is haphazard and without a pattern.
Look into the "History of Success"... no leader, artist, sportsman, businessman or even a long standing dictator is without a Theme. Therefore, to succeed as an investor, first discover your Theme.
I resonate well with the first theme. (Come to think of it, which is why it is first)
I feel connected with this theme for the following reasons:
1) It promises me solid returns. Mostly three to five times my investment. For ex. IDFC ( a leader in Infra finance and of HDFC group) whos price is heading for all time lows of 40s and ATH is 240... 6 times.
2) My investment is fairly safe because I will be investing in the leaders. This also increases the need for my vigilance, because as soon as its takes decisions unlike a leader, unlike in the past, I know its probably time to re-evaluate.
3) Leaders have very good growth numbers and sustainable moat.
For ex.
4) Every news channel and analyst tracks them. So the latest will be easy to get.
5) There isn't any element of speculation. Like the 3 out of 10 case.
6) It is respectable and sounds substantial to discuss with any potential "fund source". For ex... I have 5000 shares of HDFC. Immediately it attracts attention. As opposed to I have 5000 shares of LMW!
PS: You guys could post your themes and reasons. It will be interesting to see other perspectives. While others are requested to not post opposing or critical remarks. If those remarks are for his benefit please ask for his permission first.
I feel connected with this theme for the following reasons:
1) It promises me solid returns. Mostly three to five times my investment. For ex. IDFC ( a leader in Infra finance and of HDFC group) whos price is heading for all time lows of 40s and ATH is 240... 6 times.
2) My investment is fairly safe because I will be investing in the leaders. This also increases the need for my vigilance, because as soon as its takes decisions unlike a leader, unlike in the past, I know its probably time to re-evaluate.
3) Leaders have very good growth numbers and sustainable moat.
For ex.
- No matter how much chest-thumping Honda does it will be tough to dethrone Hero.
- HDFC Bank has Interest Expense/Interest Revenue ratio of 54% whereas others are 63% plus... Yes Bank is 74%. Strong Moat.
- ACC has the major advantage of economy of scale. And negative Working Capital. Very strong.
- Maruti Suzuki V/s others... no competition.
4) Every news channel and analyst tracks them. So the latest will be easy to get.
5) There isn't any element of speculation. Like the 3 out of 10 case.
6) It is respectable and sounds substantial to discuss with any potential "fund source". For ex... I have 5000 shares of HDFC. Immediately it attracts attention. As opposed to I have 5000 shares of LMW!
PS: You guys could post your themes and reasons. It will be interesting to see other perspectives. While others are requested to not post opposing or critical remarks. If those remarks are for his benefit please ask for his permission first.
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