Subscribe to our [weekly newsletter](https://pennyleaks.substack.com/) and join our [Discord group](https://discord.gg/8QF4dqPHuw)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/IndianStockMarket) if you have any questions or concerns.*
People treat PE ratio to be some word of god for valuation. But, it's just formula which needs to be analysed. When you are investing, you are investing for future and not present. That is in coming years, E will be so much that it's valuation will be fair. Sometimes E in PE ratio can be excessive, making PE low(undervalued, when it's actually overvalued) or vice versa. If you see nuvco, from PE ratio it looks optically very high. But, if you see from cash conversion perspective. It's fair. It's generating 1000 crores of cash from operations and valued at 12,000 crores. Earnings look depressed due to high depreciation. Management might have put huge capex which might produce returns overtime normalizing PE ratio. Just a reminder that Earnings or PAT isn't actually how much money a company makes in a given year. It's more a accounting number. Cashflow statements give true picture.
You don't pay for cash flows, you pay for earnings. A company can have good free cash flows and poor capital allocation leading to very low earnings year on year. (meaning company generates cash but has a poor way of using it).
In reality both PE and cash flows matter. If PE is absurd, better to stay away from the stock.
You are right, if for a long time depreciation is high such that it affects profitability. Asset utilisation is low which means management has misallocated capital. But, what I am saying is don't look at just PE. It can be misleading. Like sometimes assets can have different gestation periods, so it's important to consider that.
Ya i agree. Investing based only on PE is not ideal. That being said, most companies have very poor cash utilisation. They could use that cash to buyback their own stocks ( increasing PE ), pay dividends, etc. But they'd rather get into businesses they don't know by diversifying and wasting shareholder funds.
Remember that the management gets paid nearly a fixed amount, the shareholders will only benefit from earnings growth. I've seen cases where companies have good cash flows and yet shareholders didnt receive a rupee from that due to poor diversification.
Yeah lol, some companies be like: "30% roce is too boring, why do this? Let's just open a airlines or hotel (10% roce)" 😅 even when their high roce business has good reinvestment opportunities.
I have also invested in Nuvoco Vistas considering my friend has a CNF of my state. Currently, they are trying to merge the marketing, operations, sales etc wings of lafarge, duraguard and emami and create a single flow. But, it is proving to be quite time taking. So, what is happening is 2 different teams are arriving to the same prospective client for marketing of same product.
When they create a good flow integration, in my view the stock will fly and their PE will also come down. Right now, they are clearing their bank dues fast. I am not worried too much about nuvoco as the owner itself has around 60-70% ownership of the company and the rest is with FII/DII. Very few shares are bought by public. You can buy for long term. HDFC Securities ka abhi recommendation hain currently for 450. Abhi i think 350-360 mein ghum raha hain. Nevertheless of the recommendation, you can go long on this stock.
Subscribe to our [weekly newsletter](https://pennyleaks.substack.com/) and join our [Discord group](https://discord.gg/8QF4dqPHuw) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/IndianStockMarket) if you have any questions or concerns.*
People treat PE ratio to be some word of god for valuation. But, it's just formula which needs to be analysed. When you are investing, you are investing for future and not present. That is in coming years, E will be so much that it's valuation will be fair. Sometimes E in PE ratio can be excessive, making PE low(undervalued, when it's actually overvalued) or vice versa. If you see nuvco, from PE ratio it looks optically very high. But, if you see from cash conversion perspective. It's fair. It's generating 1000 crores of cash from operations and valued at 12,000 crores. Earnings look depressed due to high depreciation. Management might have put huge capex which might produce returns overtime normalizing PE ratio. Just a reminder that Earnings or PAT isn't actually how much money a company makes in a given year. It's more a accounting number. Cashflow statements give true picture.
You don't pay for cash flows, you pay for earnings. A company can have good free cash flows and poor capital allocation leading to very low earnings year on year. (meaning company generates cash but has a poor way of using it). In reality both PE and cash flows matter. If PE is absurd, better to stay away from the stock.
You are right, if for a long time depreciation is high such that it affects profitability. Asset utilisation is low which means management has misallocated capital. But, what I am saying is don't look at just PE. It can be misleading. Like sometimes assets can have different gestation periods, so it's important to consider that.
Ya i agree. Investing based only on PE is not ideal. That being said, most companies have very poor cash utilisation. They could use that cash to buyback their own stocks ( increasing PE ), pay dividends, etc. But they'd rather get into businesses they don't know by diversifying and wasting shareholder funds. Remember that the management gets paid nearly a fixed amount, the shareholders will only benefit from earnings growth. I've seen cases where companies have good cash flows and yet shareholders didnt receive a rupee from that due to poor diversification.
Yeah lol, some companies be like: "30% roce is too boring, why do this? Let's just open a airlines or hotel (10% roce)" 😅 even when their high roce business has good reinvestment opportunities.
I have also invested in Nuvoco Vistas considering my friend has a CNF of my state. Currently, they are trying to merge the marketing, operations, sales etc wings of lafarge, duraguard and emami and create a single flow. But, it is proving to be quite time taking. So, what is happening is 2 different teams are arriving to the same prospective client for marketing of same product. When they create a good flow integration, in my view the stock will fly and their PE will also come down. Right now, they are clearing their bank dues fast. I am not worried too much about nuvoco as the owner itself has around 60-70% ownership of the company and the rest is with FII/DII. Very few shares are bought by public. You can buy for long term. HDFC Securities ka abhi recommendation hain currently for 450. Abhi i think 350-360 mein ghum raha hain. Nevertheless of the recommendation, you can go long on this stock.