Is Kalyan Jewellers a Value Stock Now? (35% Down) 

Hello everyone, Rahul Shah here, trying to make investing accessible and profitable for the average investor.

A few months ago, I had published a video on Kalyan Jewellers, arguing that the risk-reward ratio does not seem to be in favour of the investor at its 'current price' back then.

I was proven wrong as the stock went up by more than 30% over the next few months.

The year 2025 hasn't started off on a good note for Kalyan Jewellers though.

The stock is in the vice like grip of bears currently and is almost 35% down from its recent highs as I write this.

In fact, it is also down around 15% from its price on the day of my video.

Mr Market seems to have suddenly moved to my side, at least for now.

I was of the view that Kalyan Jewellers had become a momentum stock with the way it had gone up the last couple of years.

Therefore, has the 35% correction from the top taken it back to the value territory? Or is the risk-reward equation still not in favour of the investor?

To be fair, there are no guidelines or a clear demarcation that separates a value stock from a momentum stock.

The boundaries are usually decided by the investor himself.

So, if the investor is a little conservative by nature, he may allocate a smaller portion to the value component and a larger one for the momentum component.

An aggressive investor on the other hand, may allocate a considerably larger area to value as compared to the conservative investor.

If you ask me though, I think anything beyond a PE of 40x-45x constitutes momentum for me. It is the thumb rule that I try to follow.

In fact, take a look at this slide. This is the CAGR or the compounded annual growth rate of 10 different portfolios between December 2014 and December 2024.

The best performing portfolio is P3 which has given a CAGR of 27% per annum over 10 years i.e. between December 2014 and December 2024.

Each of these portfolios is a 20-stock equal weighted portfolio where I have tried to find out what happens if you pit portfolios of different PE ratios against each other.

So, P3 is a portfolio where all the stocks are bought at a PE ratio of between 10 and 15 and sold after one year and then, a new batch of 20 stocks is bought, again at the same PE ratio of 10 and 15.

Likewise, P2 is a portfolio where all the stock are bought at a PE ratio of between 5 and 10 and so on.

P1 is a price to book value portfolio where all the stocks are bought based on price to book value of less than 1x and not PE ratio.

Guess what, 8 out of the 10 portfolios have managed to outperform all the three benchmark indices i.e. BSE Sensex, BSE 500 and BSE Small cap.

The 2 portfolios that failed to outperform all the three indices were P9 and P10 portfolios that gave a CAGR of only 13%. These were the portfolio with the highest PE ratios i.e. between 40x and 50x.

Thus, while low PE portfolios outperformed, high PE portfolios with PE of more than 40x, failed to do well.

This study reinforces the point I was making earlier. In my experience, you can't buy stocks at a PE of more than 40x-45x on a consistent basis and expect to make market beating returns over the long term.

You can of course make a few exceptions here and there but consistently paying more than 40x-45x is a recipe for trouble in my book.

Kalyan Jewellers' current PE of almost 87x is nearly twice the upper limit that I have set for myself.

At its peak the stock commanded a giddying PE of 128x.

Hence, even though it has fallen more than 30% from the top, the current PE is still in the momentum zone based on my maximum PE limit.

Does this mean that the stock may continue to go lower and not make any money at these price levels? Well, to be honest, no one is capable of answering this question.

A stock can remain irrational longer than you can remain patient.

All you can do is choose to play the ball in your strike zone and ignore the ones landing well outside this zone.

As I said earlier, Kalyan Jewellers continues to stay well outside my zone of value.

Whether it does the same for you depends on how you define your own value and momentum zones.

And if you haven't built one yet, you better get cracking right away.

Defining your zone and staying well within it is one of the keys to successful investing. It imparts discipline and prevents an investor from committing errors of overvaluation.

Also, it doesn't matter how big or small your own zone is. What matters is whether you know the boundaries well enough. Besides, you can keep refining it from time to time as your understanding improves.

So, define a proper zone right away and try and fix the co-ordinates for Kalyan Jewellers in it.

Also remember that a stock in the value zone tends to be more investment than speculation whereas a stock in the momentum zone is more speculation than investment.

Therefore, please proceed with caution. That brings me to the end of this video. I will see again in the next session. Goodbye and happy investing.