Dear Investor,

It is said that knowing when to sell a stock is much more difficult than knowing when to buy a stock.

Yes, if you end up selling too soon and the stock rises further, there’s a feeling of regret. Similarly, if you don’t sell and the stock crashes, the pain is much deeper.

We believe, there can never be a perfect trade, i.e., you end up buying just at the bottom and sell at the peak. Even if it happens, be rest assured, it will be a fluke and don’t expect the same to repeat over and over again.

Rather than regretting over such decisions, it’s much more important to formulate the processes and sticking to them.

Like, at the time of buying the stock itself, you should have some factors in mind as to when you will sell the stock. Knowing the basics like the nature of the business (extent of cyclicality), valuations, phase of the CAPEX the company is in, current profitability in comparison to the past, etc. help a lot. 

Similarly, it’s important to review the performance or the developments at the company against your expectations or the investment thesis on regular basis.

Let me share with you an example of a stock we sold recently in the Model portfolio:

  • Stock Name: Gujarat Ambuja Exports Ltd (GAEL)…can read the initiation report (free access) – HERE
  • Date of Initiation: 24th Jul’20
  • Price at the time of Initiation: 79.50
  • Date of Closure: 5th Jun’21
  • Price at the time of Closure: 163.30

So, despite the company reporting more than 20% growth in sales, 90% growth in EBITDA and 150% growth in PBT in FY 21, why have we closed the coverage and sold the stock in the Model portfolio.


Source: Screener.in

Well, we believe the nature of the business of GAEL is cyclical and this is what we shared with our members in our 5th Jun’21 coverage closure note (in blue color):

Over the years, it’s been observed that the EBIT margins of the other agro processing division have averaged around 4-5% while that of Maize division have averaged around 12-14%.

For FY 21, the company has recorded 6% EBIT margins in the other agro processing division and 18% in Maize division.

While the company has a strong footing in the Maize division and expanding capacities at regular intervals, the commodity nature of both the major divisions and a significant surge in the profitability in FY 21 makes us question about the sustainability and the growth in profits for the next 1-2 years.

We believe, there’s a reasonably high probability of 10-20% dip in profitability in FY 22 in comparison to FY 21.

On account of the reasons above, we have a negative rating on the stock and also closing coverage on the same.

 

It may happen that the company may further grow its profits and the stock could end up moving higher; however, as mentioned above, we don’t intend to catch the peak, but rather follow the processes.

 

If you are looking for Low Risk Strategy for investing in potential High Gainer Stocks, you can subscribe to premium memberships Alpha or Alpha + at LINK

 

Disclaimer: GAEL has only been used an example to demonstrate the thought process. It’s not a recommendation to buy or sell the stock. I don’t have any investment in the stock.

 

Best Regards,

Ekansh Mittal
Research Analyst

 

Research Analyst Details

Name: Ekansh Mittal     Email Id: [email protected]    Ph: +91 727 5050062

Analyst ownership of the stock: No

Details of Associates: Not Applicable

Analyst Certification: The Analyst certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.

Disclaimer: www.katalystwealth.com (here in referred to as Katalyst Wealth) is the domain owned by Ekansh Mittal. Mr. Ekansh Mittal is the sole proprietor of Mittal Consulting and offers independent equity research services to investors on subscription basis. SEBI (Research Analyst) Regulations 2014, Registration No. INH100001690

The views expressed are based solely on information available publicly and believed to be true. Investors are advised to independently evaluate the market conditions/risks involved before making any investment decision

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This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. Ekansh Mittal/Mittal Consulting/Katalyst Wealth is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Ekansh Mittal or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Neither Ekansh Mittal, nor its employees, agents nor representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Ekansh Mittal/Mittal Consulting or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement.

The recipients of this report should rely on their own investigations. Ekansh Mittal/Mittal Consulting and/or its affiliates and/or employees may have interests/ positions, financial or otherwise in the securities mentioned in this report. Mittal Consulting has incorporated adequate disclosures in this document. This should, however, not be treated as endorsement of the views expressed in the report.

We submit that no material disciplinary action has been taken on Ekansh Mittal by any regulatory authority impacting Equity Research Analysis.

Disclosure (SEBI RA Regulations)

Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – No

Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No

Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No

Whether it or its associates have received any compensation from the subject company in the past twelve months – No

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