I agree that future prospects are bright for a company like Jubilant Foodworks growing at a nice clip. However, stock price is slave of earnings and we (or at least I do not feel the need due to abundance of alternatives, rather over abundance of stocks on BSE) need not pay premium just because an organisation is expected to grow @10-15% for next 30 years and a stock ranks as a single decision idea.
Because stock prices should be ultimately discounted value of their future cash flows, I feel certain stocks are over valued as they will *never* (say next 15 years) earn as much as other simple ideas. In reality the stock prices are discounted hopes of future mental expectations. I’ll stick my neck out and and would try to make a prediction:
Jubilant Foodworks although not in comparable business as a Bank but this one at CMP 875 will not ever (say until 2025, trust me that is a very long time in Equity Markets) will not be able to match EPS of Jammu and Kashmir Bank until 2025 (CMP 860, Div Yield 3%). i.e by 2025 (too far a timezone, a lot of things can go wrong) I believe growth rate of J&K Bank would be as good or superior to Jubilant Foodworks and its EPS would be far higher, but market does not feel that way.
I heard a respected stock market investor Ramesh Damani speak about Dabur being fairly valued as part of his portfolio. Personally, God forbid, unless I am struck by blindness or paralysis and unable to pursue the search, why should I buy a 15-20% grower @ 40PE just because its expected to survive my grandchildren’s generation. Too heavy a price to pay for higher certainty. With benefit of hindsight check the returns of Axis Bank vs HDFC Bank between 2000 and 2011.
A handpicked portfolio of choicest small caps should provide far superior returns as they have over past 100 years.
I am all for growth, greed and returns at a faster rate but refuse to ride the 40PE bandwagon.
Market leading companies in brand new industries tend to do very well at least for few years or a decade. Stumbled upon GOGO/ Aircell, an innovative company leading a sector, experiencing exponential growth. Check it out www.aircell.com. Provides wifi, smartphones on Aircrafts.
Was granted exclusive air-to-ground broadband frequency license in FCC auction in 2006. Buffett’s Netjets is also one of their clients. Not listed on stock market. Hey, if you are a PE player you can always try.
Leave room for positive surprises !