Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Is 50% hike in this stock in 3 months justified? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 30, 2012

    Is 50% hike in this stock in 3 months justified?

    The pre-budget quarter is crucial for the Indian economy, and always full of anxiety for companies and investors.

    The Retail industry in particular anticipated some key decisions in its "wish list". These included the opening up of foreign direct investment (FDI) in multi brand retail, direct tax code, and implementation of the goods and services tax (GST). We now know that the 2012 Budget, announced on March 16, 2012 brought no clarity to these wishes, which basically remained unsatisfied.

    So, how did retail stocks fare during this uncertain past quarter ending March 31, 2012.

    For our analysis, we considered India's three largest retailers. These three companies have similar business models. We left speciality retailers out of our scrutiny, since their business models are quite different from the three big retailers.

    Trent (Westside) rose by 10% point to point over the last quarter, in line with the Indian stock market Sensex (50 largest companies) growth during the same period. Pantaloon Retail too displayed more or less similar positive performance, and marched northwards by 12%. But, the stellar performance came from Shoppers Stop, which was up by a whopping 50% in the last 3 months.

    What could be the reasons for such an outstanding performance from Shoppers Stop, the Raheja Group company?

    For starters, the most important Shoppers Stop budget "wish" item was nationwide implementation of GST. Shoppers Stop's management felt that GST would simplify the tax structure, and so help cut costs and generate more revenues. While the budget did not assert an immediate rollout of GST, it did affirm that August 2012 would be the implementation date. This brought in cheers to Shoppers Stop, and whose stock price went up by 8% and 10% on the Budget announcement day, and the day after. Of course, Trent and Pantaloons would also benefit from the GST implementation, but their stock prices barely moved. (Trent was up by 2% on the budget day and down by 2% on the next day while Pantaloon was down by 3% on the budget day and traded flat on the next day).

    Another important bit of news that came from the Shoppers Stop was regarding Hypercity, its food and grocery retail chain. Hypercity, a loss making unit, which had been launched in 2006, was continuously being restructured. These efforts included changes in product mix, reducing store sizes, and other cost control measures. Now, the company declared that Hypercity would turn-around and become profitable in a couple of years.

    Although these developments are heartening for Shoppers Stop, we do not believe that they warranted such an exponential rise of 50% in its stock price within a three month period. The stock made this huge leap despite there being no major changes in the company fundamentals. We feel that this kind of price movement is essentially speculative in nature. And so, investors would do well to stay away from such stocks. In this particular case, investors should wait for a couple of years to see if Hypercity and other company pronouncements actually materialised.

    It is in the interest of the investors to stay calm and not get too excited, or read too much into management predictions or general announcements. Specially, they should not over-react to forecasts that are two years out in the future and which are unsubstantiated by facts.

    To invest on such scanty information, is to pull the trigger impulsively. It is like rolling the dice and hoping for the best. It is speculation at best and not investment as per us.



    Equitymaster requests your view! Post a comment on "Is 50% hike in this stock in 3 months justified?". Click here!


    More Views on News

    Titan: Jewellery Business Lights up the Quarter (Quarterly Results Update - Detailed)

    Aug 10, 2017

    However, growth at these levels are unlikely to be sustainable.

    Avenue Supermarts Ltd. (IPO)

    Mar 7, 2017

    Equitymaster analyses Initial Public Offering (IPO) of Avenue Supermarts Limited.

    Titan: Beating the Demonetisation Blues (Quarterly Results Update - Detailed)

    Feb 14, 2017

    Titan Industries declared its results for the third quarter of financial year 2017 (3QFY17). While topline growth was 14.7% YoY, net profit grew by 13.1% YoY during the quarter. Here is our analysis of the results.

    Titan: Margin Improvement Saves the Day (Quarterly Results Update - Detailed)

    Nov 16, 2016

    Titan Industries declared its results for the second quarter of financial year 2017 (2QFY17). While topline growth was flat, net profit grew by 23.5% YoY during the quarter. Here is our analysis of the results.

    Titan: High Gold Prices Spoil the Show (Quarterly Results Update - Detailed)

    Aug 9, 2016

    Titan Industries declared its results for the first quarter of financial year 2017 (1QFY17). The company reported 3.3% YoY increase in sales, while net profit fell by 16.3% YoY during the quarter.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms