Pros and Cons of Investing in the Stock of Suzlon Right Now

The stock of Suzlon Energy has been among the biggest multibaggers in this bull market.

Since the lows of the covid crash back in March 2020, many stocks have multiplied investor wealth.

However, the stock price of Suzlon is up a massive 36 times. That's a lifechanging amount of wealth creation in just one stock.

Investors who bought the stock back then and have held on to it, are laughing all the way to the bank.

But very few investors belong to this elite club. Most have jumped on the band wagon recently, in the last year or so.

Mind you, even they would have done well. The stock was trading below Rs 8 back in March 2023. It's trading at nearly Rs 70 at the time of writing.

In fact, those who have already sold the stock would be regretting their decision. The stock has gone from strength to strength and doesn't seem to be slowing down.

The recent price action in the stock can be described as 'vertical'.

Just look at the top right of its chart...

So, what should investors do now?

If you don't own the stock, should you buy it, ignore it, or wait for a correction?

If you own it, should you hold, sell or buy more?

These are tricky questions.

In this editorial, we will try to answer them.

What to Do if You Don't Own the Stock

First, you need to ask yourself why you are interested in the stock.

Is it because of the sharp rise in the stock? Is it FOMO (fear of missing out)? Is it because everyone else seems to be buying it?

Well, these are not good reasons to buy the stock. You shouldn't be influenced by a rising stock price or the opinions of other investors.

If you are interested in any stock, the you should take the decision to buy in only after doing your own research and due diligence.

Now if you are willing to put in the time and effort, then by all means do so. If you are comfortable with the fundamentals of the stock as well as its valuations then a buying decision is worth considering.

Otherwise, it's best to stay away from the stock.

What to Do if You Own the Stock

If you are an investor in Suzlon, then you would be sitting on some decent amount of profit.

Now you must decide what to do next.

The answer to this will depend on the reason why you bought the stock in the first place.

Was it a long term investment or a short-term trade?

Short-term trades are meant to be exited once a certain target price is achieved.

Did you have a target in mind when you bought it? If so, it makes sense to exit once it's achieved. The best traders don't get greedy for more profits. They are disciplined when it comes to selling.

Long-term investments are a different game. Here, ideally you should invest only if you understand the business, the sector, and the management's plans. You also need to be comfortable with the valuations of the stock.

If any of these are out of place, then it doesn't make much sense to hold on, even if the stock is rising.

Now let's look at the pros and cons of the stock.

Pros

#1 Improvement in Fundamentals

For many years the stock was down in the dumps...and for good reason.

It's business model had collapsed. It was saddled with debt. It was struggling to raise funds. Losses were mounting with every year. Even it's net worth had turned negative.

So, have things changed?

Yes, it has.

The company is now profitable. It turned around in FY23 and hasn't looked back.

This was due to a combination of equity fund raising, debt repayment, and revenue growth. The company's net worth turned positive in FY23.

It's annual interest expenses fell from around Rs 13.6 bn in FY20 to Rs 1.6 bn. The massive decline is due to debt repayments. The falling interest expense has given a huge boost to the bottomline which has gone from a loss of Rs 26.9 bn to a profit of Rs 28.9 bn.

Although FY24 was a muted year in terms of growth, the company picked up the growth momentum towards the end of the year. The fourth quarter of FY24 and the first quarter of FY25 were excellent in terms of overall performance.

#2 Big Order Wins

At the end of FY24 the company's order book in its core wind energy segment was 3,331 MW, up from 652 MW at the end of FY23.

The company also won a 402 MW order early in FY25 from Juniper Green Energy.

The company's aim is to bid for about 50 GW per annum from FY24 to FY28 and achieve a target of 100 GW by 2030 by adding 8 GW capacity per year.

The substantial increase in orders will hold the company in good stead going forward.

Cons

#1 Extremely Challenging Sector

The wind energy industry is very difficult to operate in successfully.

Orders are dependent on government policy to a large extent. In the case of India, the company's order book is directly linked to the Indian government's funding of renewable energy projects.

Quality standards are stringent. There are issues with land acquisition, equipment costs, as well as environmental issues.

Any slowdown in the sector, due to market factors or government policy changes will hit the company's revenue and profit very hard.

#2 High Valuations

The stock of Suzon Energy is trading at a PE of 110 and a PB of 22. This certainly makes it a very expensive stock.

While the company's fundamentals are improving, the stock's high valuations present a challenge for potential investors.

Thus, any negative surprise on growth will take a toll on the stock.

To know more, check out Suzlon Energy's factsheet and quarterly results.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...