Bad markets provide some of the best investment opportunities and most of the smart investors look at it optimistically.
The logic is very basic: It’s easier to find good businesses at reasonable or very low valuations during such periods and during the ensuing bull run one gets the benefit of both earnings and PE rerating. While bad markets don’t promise immediate returns, our experience suggests that investments made during downturns deliver the best returns in 3-4 years.
Luckily, these days it is not uncommon to find good investment opportunities because a lot of stocks are trading 40-50% or even 60% below their recent highs.
We have found one such good stock idea and have shared the report with our Premium Members. It is also part of our Model portfolio. Read more about the company below:
If you understand the fact that market movements are cyclical and it’s always good to invest during bad times (they don’t last very long), you shouldn’t miss out on the latest pick and make the most of it by subscribing to Premium Membership. Register yourself HERE
Its during times like these one sows the seeds of multibagger opportunities in one’s portfolio and we are glad to have identified an investment opportunity which is recording more than 20% CAGR in earnings and still available at reasonable valuations.
As on date, we like several points about the company and they are as below:
Consistent growth in sales and profitability: Over the last few years the company has consistently recorded more than 20% CAGR in sales and 24% CAGR in profitability.
Focused on low-cost products and low cost operations: Major part of the product portfolio of the company is priced cheaply and thus its competition is largely with regional and unorganized players.
Unlike other companies in the segment, the company has the lowest gross margins of less than 30% against 40-60% for its peers; however because of its overall low cost structure the company is still able to command very good EBITDA margins.
Very well managed business: In the segment the company operates in, the sales to working capital ratio is around 4-6; however the company under consideration has consistently maintained sales to working capital turnover of more than 15.
Similarly the fixed assets requirement is also very low. In fact, in the last 9-10 years the amount spent on fixed assets is almost equal to the PAT reported by the company in FY 18 alone.
Thus, on account of low overall capital requirement, the business throws up loads of cash each year.
Reasonable valuations: It is one thing to find a high quality company and another thing to buy it at reasonable valuations; however the company under consideration is trading at half the valuations of its other bigger peers.
Thus, small size of the company makes it an undiscovered stock and out of the purview of institutional investors. As the company gains scale, the stock will get discovered and likely to get re-rated in line with other well known companies of the segment.
Overall, we see a very good opportunity and would suggest you to get access to our latest pick by subscribing to one of our Premium Memberships. The new recommendation is also part of our Model Portfolio.