Monday, February 1, 2010

Things to be looked at while picking stock......

I am seeing lots of readers asking me about stocks.I am no Master nor an analyst.I do not know anything about where people can rely on me and take decision.
My analysing of stock is RAW.It has no proper way to see things.
So, please don't rely on my opinion.I can go wrong in big way.
Another thing I would like to write here is , don't try to run after stocks which has a medium growth.We want exponential growth.The topline should go up in big way and hence the results should be seen in bottomline.
I again am writing some factors that one need to see, when they pick up a stock to buy or ask me about it.

First see the P/E.....if the p/e is high and still you like that stock then try to see the growth and see whether the earning will come more or not.
If the stock is already quoting at high p/e ,means say if eps is 4 and stock is quoting at 60 , then the p/e is 15 and still you wants to buy it then you need to analyse whether the eps will go to 10-15 and hence stocks p/e will become less and hence will become a value buy......
Like for e.g take Thomas&Cook.It is 1 paidup and hence we can say that at cmp the stock is quoted at 69.65 then 10 paidup it should be 696.50.So the p/e is already at 74.This datas one can find at bse site on stock quote page.
Now Thomas Cook is having a NP of 10.22 cr in sep qr and that gave an eps of .49 for the qr and hence p/e is high.Now what needs to be seen is whether the np will grow exponentially in next one year?Like say, whether the np will say will np will come to atleast 160  cr by the end of the year?If yes, then it should have np of 40 cr in the  qr of sep '10.
then only the eps will come to 2 and with market discounting at same p/e as of 74 , then only at 8eps for whole year Thomas cooks will be quoting at 600 .....Is that possible?Try to ask ur self....
Now try to analyse whether that is possible?Second try to analyse whether market will still give the same discounting of 74 p/e multiple.Now that depends upon the sentiment of market.If market sentiment is bad , then Thomas cooks can have low discounting and may drop to 35 p/e and in that scenario,the stock price will go down or remain stagnant.Moreover , the 74 p/e is quite high for any Co .....that needs to be suatained for next 1-2 yrs.Ask yourself whether that is possible?There is also less scope for p/e to go higher from 74! So on p/e front we can't expect it to expand.....otherthing to note is  if the p/e is low then we can also assume that p/e is also low so that can also go up...but that is not the case in Thomas Cook...
So there can be no appreciation of money there.....
Thomas Cook being a MNC , market is giving high discounting.But if sentiments becomes bad the discounting can get lowered and we lose.
If someone is betting for ST and try to earn some 25-30 or even 50 %return  then it is OK.But then one need not ask me about that as I never look at stocks for that much return.
I have usually refrained from buying stocks which are already splitted.If it is 1 paid up or 2 paidup I rarely look at those with some exceptions like Rico Auto etc.
The reason is, if a stock is 1 paid up, it has to earn 10 times more to show that in eps then 10 paid up stock.Do the maths yourself why I am saying so.Same goes for 2 paid up, they have to earn 5 times more then 10 paidup.
So the bottomline here is, when you pick the stock , try to see the product and market.Whether the Co have big growth or not?That is very important. If not then ignore such stocks.
I track Himalayan Int since it was listed.Means 10-15 yrs back.It never performed as management said.There is some restructuring that have taken place but it is in Mushroom products and they export overseas.Now the thing one need to note is foriegn countries like USA, UK,Canada or European countries , they are very quality concious.They take care of their people very much and hence just one bad shipment and the order is cancelled and then it is hard to get a new order.Once your image is tarnished it is hard to get it back.......These are the things one needs to keep in mind while tracking stocks and that is the reason I do not track Himalayan Int....or Thomas Cook ltd.One is having a very high P/E multiple and with sentiment of market becoming bad the discounting can go down.While in Himalayan Int , the product is such that  a small blunder can cost co very dearly.......
So freinds, keep all these in mind and then go for it.....
And last but not the least,I can still go worng in big way and market can do something that I do not take your own call......anything can happen in  market and nothing can be ruled out.....
Try to read and understand each and every sentence of this POST properly. Try to understand what I am saying and what I am telling to look at.......


  1. Superb.... Simply Superb.....


  2. Thanks Rajeev ji for enlighting us small investors.
    See again , today all below are in UC
    Lesha, Petron, kwality..
    Pls suggest if they are still buy ?

  3. Dear Rajeev,

    I don't understand how you say for 1 paid up the company has to earn 10 times the eps. I am under the impression that if there is a stock split the eps also gets reduced to that ratio. It only provides more liquidity to the stock , I thought. Pls correct me, if i am wrong?


  4. Forgot to add , even price of stock gets reduced to the ratio of the split. Then the pe remains the same.
    Please clarify.

  5. Dear Murali,
    Yes what u says is also correct.But what I wants to say is if a 10 paidup stock has to put 10 eps and if 1 paidup stock has to put 10 eps what will happen.
    1 paidup stock will have to show 10 times more np then 10 paidup stock.
    Say, 10 paidup stock with eq of 10 cr, earns 10 cr and hence eps will be 10.Now if a 1 paidup stock with same eq earns 10 cr then for it the eps will be 1.
    Ofcource the price is for 1 paidup but what one needs to look while going for splitted stock is one need to multiply by 10 for 1 paidup or 5 for 2 paidup.Then see what the price comes and then try to look at other stock with 10 paidup.Like I wrote Thomas Cook is 1 paidup and price is 70 so 10 paidup it will be 700.Now try to see at this 700 price u get better valuation in other stock which is 10 paidup.....Murli, it is a long proceess to understand....I can't explain takes lots of my time....but if u have observed , 1 or 2 paidup stock has higher p/e ratio and hence makes no sense to invest there...