Divi's Labs and the Dangers of Moat Investing - Views on News from Equitymaster

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The Equitymaster Research Digest

Divi's Labs and the Dangers of Moat Investing
Mar 24, 2017

  • No respite in sight for Divi's Labs
  • Taking the opposite side of the trade
  • We repeat: DMart IPO was a bad investment

Our pharma analyst loves Divi's Labs. In a recent internal presentation, he admitted that not recommending Divi's Labs is one of his biggest regrets.

That's fair. One look at the numbers and it's hard not to go weak in the knees. A pristine balance sheet, a rock-solid track record, and unshakeable profitability - the company has it all.

However, within just a week of his presentation, the ever-expanding tentacles of the US drug regulator would have Divi's in a vice grip. An import USFDA alert at one of Divi's plants caused the company to crash 55% from its 52-week highs.

And there's no respite in sight.

Now, our analyst did warn about the regulatory risks engulfing the pharma sector. But it seems even he didn't think it would reach the doorsteps of his favorite company.

Mind you, we are not saying Divi's is guilty. There's every chance it will emerge from the episode and resume its growth journey.

But we have to point out the dangers of investing in 'forever stocks' like Divi's.

The Big Danger

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