Dairy Isn't FMCG - Chart Of The Day 17 May 2018 - Equitymaster

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Dairy Isn't FMCG
May 17, 2018

In today's chart, I'll present the key differences between FMCG and dairy companies.

If you're thinking about buying a dairy stock, look out for these ratios.

The differences are stark...

Clearly, FMCG fares much better on every point.

FMCG companies generate much higher free cash flow than companies in other sectors. Not to mention, the predictability of growth is better.

The low capital-intensive nature of this business results in a higher return on equity (ROE). A high ROE indicates these businesses are highly profitable. That's why FMCG stocks get premium valuations in the market.

On the other hand, dairy companies don't have these qualities. As you can see, their ratios are dismal.

Now just to clarify, we don't hate all dairy stocks.

At decent valuations, we could consider them...as long as they get a high Smart Money Score.

But certainly not these levels.

Meanwhile, Kunal and I have almost decided this month's Smart Money Secrets recommendation. We'll publish the recommendation report on or before 28 May. You can get access to Smart Money Secrets here.

Data Source: ACE Equity
WC: Working Capital, ROE: Return on Equity

This Chart Of The Day was published in The 5 Minute WrapUp - We Walked Out of This Company's Analyst Meet and Won't Recommend the Stock Unless...

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