Neutral on Titan Industries
November 22, 2011 | In: Mid Cap Stocks, Stocks Analysis
I’ve always been neutral on Titan Industries due to the kind of valuations it has been enjoying. Being a long term investor I would care a lot about valuations before I decide to invest into a company. Always remember that growth and valuations are both equally important when you are hunting for a gem stock.
Titan Industries is expected to post an eps of 6.3 for FY12 and 7.8 for FY13. This makes the stock trade at a PE of 30 as per FY12 earnings and 24 times FY13 earnings which by no definition is cheap, I’d call that very expensive. Our markets alone are trading at 12 times FY13 so why would one want to pay double that in Titan?
I am certainly not saying that the stock can crash or go down in immediate short term but the fear is of limited upside it offers in the long term compared to several other stocks out there which are trading very cheap. A good quality costly stock has it’s game finished already. Titan is costly now and no longer forms a gem buy.
The biggest fear is what if Titan sees earnings downgrade in coming quarters, it could always be a possibility. A stock remains high valued, enjoying premium over others if it continues it’s dream performance in terms of earnings. Any sign of weakness in earnings going forward, Titan could get stuck in a consolidation period for a long time just like reliance that was trading high in 2009 and due to disappointments, it remained at same levels for more than two years.
I would advice to hunt for other good quality stocks which are trading at low valuations. Titan posts a target of just 235 – 250 with a 18-24 months view whereas in the same timeframe some other stocks could more than double your investment money. Anyway if one still wants to invest here, try to pick this stock only around 20 times FY13, which is around 150 or below.
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