Hope you are doing well.
Yesterday, we released our new stock recommendation for our Alpha and Alpha + Members and would like to share with you details on the same.
We focus on growth oriented small-mid cap companies that are trading at reasonable valuations and invest with a horizon of 3-4 years.
The one shared yesterday fits our framework as despite being a 1000 crore market cap stock, it’s one of the largest players in its segment, has great operating performance track record, expanding aggressively and available at only ~10 times pre-tax earnings.
Key points about the company:
- Growth – It has grown its sales and profits at 15% CAGR over the last 10 years and never diluted equity
- Cash Flows – The company has consistently maintained strong operating cash flows in line with the reported profits
- Growth CAPEX – Since the last 3 years the company has been expanding its capacities aggressively and building for future growth
- Debt – Barring last 2-3 years, it remained largely debt free with some surplus cash on the balance sheet
- Despite carrying out a major capacity expansion (to be completed by the end of FY 23 or H1 FY 24), the company has only small amount of debt on the balance sheet
- Valuations – Available at only ~10 times pre-tax earnings. There’s valuations comfort not just from earnings but also from the fact that company holds investments worth 40% of its current market cap
- Promoters – Technocrat promoters with skin in the game. Currently, 3rd generation of the family is also involved in the business
- Dividend – Paying consistently since 2005 with average dividend pay-out of around 25%
What makes the stock interesting from the perspective of next 3-4 years is that the company has set up capacities with focus on value added products. It hasn’t taken much debt for the expansion. So, as the company reaches optimal capacity utilization over the next 3-4 years, we expect a major jump in earnings on the back of higher sales and expansion in margins.
Further, due to the correction in the small cap stocks in the last 1 year, the stock is down 30% + from the highs, while the business fundamentals have improved; thus, making the stock available at very reasonable valuations.
You can get this new recommendation along with other recommendations, by subscribing HERE
Disclaimer: You can access it here – LINK