The article is articulated in the three parts
Defining the framework (parameter and reasons) to filter the stocks for investing
SWOT analysis on the recommended stock
Talks more about how do you make it more predictable (or improves the probability) for 3-5-8 years that the stock will be a multibagger and brainstorming on some of the methods known from some famous investors
Based on the defined framework I recommend -
Stock name - Share India Securities
Mcap - 6100 (as on 27th march 2024)
Sector - 14.66 (lesser than the industry average PE)
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Part 1. Defining the framework (parameter and reasons) to filter the stocks for investing
The first part is written in the below format -
<parameter>
<reason-1 why the parameter is important / significance of the parameter in the context of investing>
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Last Qtr Financial -
For the current year the profit in 3 qtr should be equal or more than the last year annual net profit
Curr year (3 Quarter net profit available or via extrapolation ) > last fiscal year net profit
Here the last qtr profits become important to extrapolate the current fiscal year profit
TTM PE
If the stock is relatively cheap than its peers gives the more valuation comfort
Even its more than its peer it should certainly not too much overvalued based on the other companies in the overall market
Capex
Just like the increase in the sales it is important that the company is having growth in the capex which will further enhance its sales / top line in the future
Profit Margins
Better operating margins simply defines the company is more efficiently managed than its peers
Better the profit margin more the money is reinvested in the company
Sector growth rate
Famously quoted by Vijay Kedia sir - “Stay in a Sunrise industry at any cost. Stay out of the Sunset industry at any cost.”
Health sector growth rate simply defines the overall sector will beat the market / gdp of the economy in 3-5 years
Investment done in the more growing sector in the early stages tends to attract more premiums and PE in the future
Potential future growth in the company - any acquisitions, entry in foreign markets
Directly increase in the top line
Gaining the market share
Top investors in the company (or any mutual funds, PE funds or FII)
If some mutual funds, PE is investing in the company then it reduces my due diligence for few of the things as they might have already done the enough to make sure that there is no potential risk in the company which will wipe out its mcap like
If the company has growing concern
Certain other risk parameters w.r.t to the promoter history, any major litigation in the company
Promoter shareholding
More the promoter equity gives the comfort that the promoter can divest some part of equity to seize more bigger opportunity like how reliance did and divested the shares to facebook and google
Customer Feedbacks and dependency (Strong Moat)
If applicable and if gettable what does the customer say about the company's core product
Is the company monopoly in the business and there are not many choices for the customers
If the customer are happy they are going to be loyal and less chances of switching to other competitor
Time to entry in the stock
Returns are highly dependant on the price at which we have entered the stocks
Using some technical indicators (MACD, RSI, Supertrend etc)
% difference b/w the current price and life time high price etc
Risks
Dependency on raw material from the supplier
Exposure to the international volatility
Too much debt
Can increased cost easily passed to end customer
The above parameters for Share India Securities
Time to entry in the stock (Share India Securities)-
Based on the Fibonacci Retracement the stock is trading at the support level of 1600 also there is strong support of 1540 (further downside can be up to 1540)
RSI indicate that it is nearly at oversold level
MACD also suggests +ve more going forward
ADX and bollinger bands suggest the stock may consolidate at this level for some more time
Conclusion - Can enter in the stock at the current price with the further downside risk of 4-5%
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Part 2. SWOT analysis on the recommended stock (Share India Securities)
Strength
It is having 10-15% of the market share of the total derivative volume in India
The management really understands the value to remaining technology relevant in the fast changing technology it is proven in their con calls and also recent acquisition of Silverleaf Capital
Weakness
In one of the interview the ceo said that the one of the reason to acquire Silverleaf Capital is that the company was not able to made the sophisticated infrastructure which was with the Silverleaf Capital which simply shows that the current product managers or programmers in the company need more skill enhancement, once the company release its weakness it knows where it has to improve on or shift focus on
Opportunity
Indian derivative market is growing like no other economy and same with the no Prop traders which the company can capitalize on with their platforms like uTradeAlgo
They are entering into the other growing economies / market (international expansion) which will benefit them in the long run / first movers advantage
Threats
Switching cost is very low, customer can easily move to some other more lucrative / advanced platforms for trading but the company is continuously work on its tech to stay ahead in the game
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Part 3. Talks more about how do you make it more predictable (or improves the probability) for 3-5-8 years that the stock will be a multibagger and brainstorming on some of the methods known from some famous investors
Part 1 in the above article make it very much predictable for good returns in the next 1 year
Part 2 of the article tried to estimate the current state of the company
? Now here how do we make sure or be more probable that the company which we are investing will thrive and become multibagger in the next 3-5-8 years
Coffee can investing - Seeing the past history to be more sure of the similar returns in the future
Now in the coffee can investing Saurabh Mukherjee tried make it more predictable by seeing the historic data and operating history and here the base assumption is how the company have performed historically in the past it has potential to repeat the same in the future and making sure it is robust in the long run
Warren buffet style of investing which evolved over the years -
Either the company should be highly undervalued and trading low to its true value and there is surety that in some years the market will realize its true value and you will get good returns on your investment
Making sure you are betting on the best possible management in the industry who are capable of increasing the mcap and currently the company trading on the average industry PE and hence you will get good returns on your investment
Investing on the good companies (like Apple, innovating, strong envy of the brand, growing) even if the valuations are little higher but at reasonable price this also makes it very much probable that your investment will give good returns
Conclusion - I do feel making it more predictable (or increasing the probability) that the stock will compound in the next 5-8 years (longer horizons) and holding it in market ups and downs with conviction is very subjective and this is what makes an investor a great one.
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