It’s not very often one gets a company with strong business moats, scalable business model, low capital intensity, consistently high return on equity, very good cash flows and growing at 30% + annually, and if you are able to identify one, it would be insane to miss out on the buying opportunity because such companies go on to deliver huge returns by steadily compounding your wealth.
In the image below check how much your one time investment grows if the company you invest in grows at 25-35% on annualized basis. It pays to be long term investor in good companies.
Luckily for us and for our members, we have been able to identify a company that delivers on all the above parameters and we recently released the recommendation for Alpha and Alpha + (with and without Model portfolio service) members. You too can get a detailed report on the same by subscribing to either of Alpha or Alpha +
Details on Alpha recommendation
The company that we have recommended to our members is the only company in India in its area of operations, though 2-3 years down the line few more listings are expected.
The company has been promoted by first generation entrepreneur with an unwavering passion for his line of business. Besides, considering the way the company has been growing, it has expanded its board of directors and core management team with the inclusion of highly eminent professional from varied sectors.
Strong moat – We like companies with competitive advantages leading to strong entry barriers for current and potential competitors and this company’s business is structured in such a manner that it deters new competitors from foraying in its space.
Any new competitor can only emerge if it is willing to lose huge sums of money upfront for multiple years and even that is not a sure-shot way to success. Thus, there’s no space for smaller companies and it can be gauged from the fact that in India and globally, there are just handful of companies and those which have been successful are multi-billion dollar companies.
Low capital intensity, high return on equity and strong cash flows – Though upfront fixed costs are huge, the capital intensity of the business is low. This company, having achieved reasonable scale, is now highly profitable with return on equity upwards of 30% and cash flows from operations higher than reported profits.
So good are the cash flows that the company is likely to emerge debt-free by the end of 2014.
What is the growth outlook for the company? As per the guidance shared by the management, they expect to maintain 25-30% annualized growth on the back of customer mining and thereby higher revenue from existing customers, introduction of new products and deeper penetration in the existing markets.
In order to support the growth momentum, the company recently doubled its in-house manufacturing capacity and at the same it has been expanding its outsourcing network.
Let’s look at the key financial metrics of the company:
- 4 years Sales growth – 40% annualized
- 4 years profit growth – turned around from loss making with 30% + CAGR
- 4 years Avg. Cash flows from operations – In line with the reported profits
- 4 years Avg. Return on Equity – Higher than 35%
- Debt equity ratio – Reduced from 1 to 0.1 and will soon be debt free
- Promoter holding – Higher than 50%
As mentioned above, we believe this Alpha stock is a very good company and can be part of one’s long term core portfolio. You can get a detailed report on the company by subscribing to either of Alpha or Alpha +
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