Eicher Motor's Performance Over the Decade - Chart Of The Day 3 April 2018 - Equitymaster

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Eicher Motor's Performance Over the Decade
Apr 3, 2018

Ignoring the price while buying quality stocks won't help you...even over the long-term.

In fact, it's one of the riskiest investment approaches.

This is because, the valuations of even the most highly respected companies will invariably fall back close to its long-term average.

My blueprint for Sensex 100,000 spells that out clearly.

Let's face it. Life is hard for even the best businesses and sector leaders.

Their business models are rocked by regulations, cutthroat competition from startups, and fast-changing technology.

And the valuations that you pay for them must have room for tiding over such challenges.

Take the case of Eicher Motor.

This company has shown a sterling improvement in profit growth, margins, and return ratios over past five years.

And this has been reflected in the valuation multiple as well.

Even while its PE multiple fell from 60 in 2014 to about 40 in 2017, the stock still delivered an average return of 15% per annum.

But how long can that continue?

Now, I'm not trying to talk down the stock. Eicher Motor may remain a reasonably strong performer.

And many so-called 'experts' may urge you to buy the stock even at the current PE of 40.

But remember, paying a steep price upfront will put you on the back foot when it comes to future returns.

Data Source: Ace Equity

This Chart Of The Day was published in The 5 Minute WrapUp - What Cigarettes and Bikes Have in Common with a 30% Market Crash

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