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What next for Compuage Infocom Ltd? - Views on News from Equitymaster
Profit Velocity
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What next for Compuage Infocom Ltd?
Jun 12, 2017

Compuage Infocom is down more than 20% since our recommendation and could well be the latest casualty of our insistence of a strict 20% stop loss in Profit Velocity.

Fundamentally, this is what we had written about the stock when we first recommended it:

The company targets to become a billion-dollar company by FY19 by adding four-five vendors every year, brands (filling product gaps), enter new markets/ cities and increase the share of fast-growing smartphones in revenues.

Although the company operates on a wafer-thin PAT margin (around 0.5%) and has high leverage, both these parameters have remained remarkably consistent over the past many years. In fact, the debt has come down from a high of 4x in FY09 to 2.9x in FY16. While the consolidated topline is up nearly threefold between FY09 and FY16, the profits are up around 2.4x.

Latest Results Not Bad

The company's latest results too haven't indicated anything that would warrant a negative view on the stock.

In fact, the results were good with the consolidated topline growing by 15% in FY17 and the bottom line doing even better at 18% YoY.

So what is it that could have possibly caused a one-fifth decline in the market value of the company since our recommendation?

Unfortunately, the way the service works, it does not have time for any such introspection.

While we do check the fundamentals of every company we recommend, it needs to be remembered that Profit Velocity is primarily a momentum service.

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