A short note with some examples of poor stock performance.
Asian Paints
Bajaj Finance
Dmart
are some of the darlings of investors. Both retail and institutions.
Many fund managers can keep going on and on about their growth prospects, management quality, value accretion and why they are a must in a portfolio.
True, these companies have shown splendid Earnings growth post 2020. In the last 2 years, the EPS of these companies have grown massively.
Asian Paint EPS Growth – 43%
Bajaj Finance EPS Growth – 211%
Dmart EPS Growth – 262%
If you are an investor, you should be rejoicing in this but in reality, this is their 2-year stock market returns in absolute terms.
Asian Paints – 3%
Bajaj Finance – 4%
Dmart – (17%)
Not only have you made lower returns than a savings account but in some cases lost money too.
Isn’t market slaves of earnings? How can this happen?
Earning multiple contractions (price/earnings is popular earnings multiple)
Just look at their P/E movement in 2 years.
Asian Paints: 87 to 65
Bajaj Finance: 90 to 30
Dmart: 266 to 106
In simple terms, in 2021 you had already paid a heavy price for expected growth. Hence though the growth happened, the price didn’t move.
Investing is nothing but paying a price today for future growth. Pay the right price and you will earn in any situation (Margin of safety)
Knowing the price and knowing the value is different.
