Background: It’s a gem that is largest listed company in its business and its products are used in variety of “recession-proof” sectors. There are not many peers of the company but incidentally although being the largest, its has the smallest market cap (imp: the stock is not ignored, rather “missed” by investors)
The Gem: What if I tell you there’s a company (a small cap), that’s the “largest” listed company in its space and second largest company in the world overall. What if I tell you that its been growing at a very brisk pace in last 5 yrs and its net profits have been growing at more than double the pace of its topline (inspite of brisk pace of topline itself). What if I tell you that its operating margins are only improving in last five years (FY 10 onwards). What if I tell you that it’s a hefty dividend paying company and still its dividend payout is also increasing every year. By the way, one reason behind its better OPM is also its pricing power. It manufactures all the range of products that its sector regulator has legalized unlike its smaller listed peer which manufactures miniscule number of product range. Incidentally, its smaller listed player is mistakenly taken to be the biggest and only player in the sector (among many reasons this is one of the reasons this gem was probably ignored) and this is where our opportunity lies in grabbing this gem. The promoters have a high stake in the company with no pledge.
Valuations: What if I tell you that this fast growing, high dividend paying company is available at single digit PE (last four quarters trailing) and its market cap is significantly discounted to sales. The company is generating very good cash flows. The company is trading at a market cap which is lower than its smaller rival also listed on the same exchange.
Technicals: The stock some time back broke out after multi-year consolidation and is now trading near its all time highs. Technically its rock solid as the breakout has happened on massive volumes.
Note: A stock with strong rising sales, improving operating margins, very good dividend payout and available at cheap valuations with a chance of strong PE re-rating is the right recipe for potential blockbuster multi-bagger and should be strongly considered as a core bet. Furthermore, I wont be replying to any emails regarding the answer and would disclose the name on Monday during the trading hours and i request noone to post probable answers on the blog.