I see a lot of discussion on REC (Rural Electrification Corporation) today where people are advising to sell the stock. To be honest, I disagree with the sell calls on REC, a lot of people are advising to go short on the stock because it just rallied quite a bit yesterday but the rally was totally deserving. Even though the company has been performing good as you can see their results every quarter, the stock price was not performing. REC post big correction was looking too undervalued. The reason for underperformance from the stock was those concerns with SEBs going into losses and REC’s mega exposure to those electricity boards.

Now the government is looking towards settling this state electricity boards issue and will look to cut the losses of PFC,REC kind of companies. Stay assured, nothing is going to happen to REC like finance companies. These kinds of issues will get resolved with time and this company will continue to thrive. All you need is to give time to the stock and it’ll perform. There is really no point of selling this company at an under valued price. If you’re an investor in REC then you should continue to hold the stock on a long term basis. Ignore the short sighted people’s sell calls and stay long, this company will definitely make you money in the long run. REC is not a small company that’ll die because of some issues like this, rather it is a very large company that has been growing really well, see it’s P&L statement for the last couple of years.

In terms of valuation, the company had delivered an EPS of 26 and the stock is trading around 225, which is a P/E multiple of around just 8.6. I don’t think such a cheap valuation is justified for a company like REC. The management’s last interview on TV also did not reflect any kind of problems, they have been quite positive and thus we need to stay calm and hold on to the investment. Sell REC in future at a much higher price rather now in a hurry at an undervalued price. Fundamentally the stock is strong and should be held or bought at these prices by long term investors and definitely not sold.

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