Hello Sir,
Hope you are doing well.
Yesterday, we released new stock recommendation for Alpha and Alpha + Members and would like to share with you details on the same.
It’s a cyclical company related to food processing sector.
We like cyclical sectors, because if you can catch them during their lows, in general, the downside tends to be low because the stock is already down and not many expectations are built in.
Also, once the cycle turns and the performance of the sector and the company starts improving, the stock goes through a series of both earnings and valuations re-rating.
In the last 10 years, the stock we recommended yesterday has gone through 2 major upcycles:
- FY 15 – FY 18 – From FY 15 lows, the PAT of the company increased 10x by FY 18 and the stock price increased almost 20x from lows
- FY 20 – FY 21 – In FY 20, the company incurred loss and in FY 21 the company recorded highest ever profit and the stock went up 5x from lows
FY 23 and FY 24 were again bad years for the company and the stock is down 50% from the peak; however, FY 25 started on a good note.
In our research report, we have made certain projections and believe that even if the company goes back to average EBIT margins, its PAT can go up 3-4x from FY 23-24 PAT levels.
In case the cycle turns extremely favourable, as it did in FY 18 and FY 21, company’s PAT might even go up 5x from FY 23-24 PAT levels.
These are obviously estimates based on past cycles.
Another positive about the company is that it’s now debt free on net basis. Further, as the company has sufficient additional capacity, it’s not planning any major CAPEX over the next few years.
Valuations – Currently, the stock is available around 1.7 times book value. Over the last 5 years, barring the covid lows, the stock has traded in the range of 1.6 to 6 times book value.
Thus, considering the valuations and the scope for improvement in earnings, the risk-reward ratio looks favourable from a medium-term investment perspective.
If you are medium-long term investor, you can get the new recommendation along with our other premium Alpha and Alpha + Members by signing up HERE.
Note: Learning and Investing should happen together. You get detailed reports with our recommendations so that you can learn how to select stocks and understand the thought process behind stock selection.
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Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/
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