Orchid Chemicals Is Fundamentally Strong
May 20, 2011 | In: Mid Cap Stocks, Stocks Analysis
Orchid Chemicals posted a good set of numbers for this quarter Q4 and the whole year FY11, inline with estimates. However the street might have taken it negatively and so the stock has been declining from 320 levels to almost 280 now and I believe there might be further declines in the stock. It could be a case like the results nothing great to have the stock sustain 14-15 kind of current P/E multiples and thus people are discounting the stock right now. There is a risk of further downgrading of the stock unnecessarily, and thus if one wants to fresh buy into the stock, then should wait for the stock to stabilise at some kind of levels before entering.
Orchid Chemicals posted net sales of 1668 cr as against 1251 cr, up 33% YoY and net profits stood at 159 cr as against 331 cr. But then Orchid Chemicals had one time exceptional gains last year and so the profit figures look inflated for FY10. The company had losses for the 3 quarters of FY10, so the actual profits would be really bad for whole of FY10, had that exceptional items not been there. The results have been strong and in line and there was no reason to crash the stock like anything. Orchid Chemicals management has also given a strong guidance of 25%+ kind of profit growth for FY12.
Orchid Chemicals has posted an EPS of 22.64 for FY11, which comes to a P/E of 12.45 on the current price of 282. Believing the management’s guidance of 25%+ kind of growth, we come to an estimated EPS of about 28 for FY12. Thus the stock trades around 10 P/E multiple one year forward. These valuations clearly tells us that stock is not at all high valued but trades between low to fair valuations. Any further decline in the stock like 5 – 10% from current levels should be utilised to gain entry to the stock as anything below 10 P/E one year forward would start looking cheap, specially in the Pharma space where peers are enjoying crazy high valuations.
Orchid Chemicals(cmp: 282) can go upto 375 if held for a longer period of time.
Related posts: