Titan Industries Has A Target Of 4000
May 4, 2011 | In: Large Cap Stocks, Stocks To Buy
Titan Industries announced it’s Q4 results which saw it’s revenue growth inline with the expectations but it’s PAT fell below expectations due to contract in margins in it’s watch sales. Titan Industries reported a revenue growth of 36% at 1,778 cr and a net profit growth of 64% at 83 cr in Q4 FY11. It’s total revenues in FY11 stood at 6,520 as against 4,670 cr, up 40% YoY and net profits were up 72% at 430 cr versus 250 cr. These figures look really good and tells us that Titan Industries as a company has been doing phenomenal and perhaps that was the reason why we kept on seeing the stock touching new highs.
Problem with Titan Industries Stock
The only problem with Titan Industries stock is it’s over stretched valuations. Titan Industries has posted an EPS of 97.8 for FY11 and the recent high of 4100+ was around a P/E of 42. A small problem with Q4 results regarding the operating profit margins and the stock has been hammered down to 3770 levels already and I expect further downfall in this stock. This is the only problem with companies trading at such high valuations. It is all good till they beat results expectations but the moment they lag the growth as expected and there the stock gets penalised like anything.
Dream Run Over?
A lot of people were looking very excited seeing FY11 results and were hoping to see targets of 5000+ in Titan Industries and unfortunately the stock is falling like anything now. One could argue that it has to do with the market fall, but if at all results of Titan were as good enough to support such kind of high valuations of 42 kind of current P/E, Titan would not fall so much. There has already been close to 10% fall in Titan from it’s recent highs and I expect a bit more fall before it sees some kind of bounce back. We can safely assume that Titan’s dream run is over and the stock might begin to perform normally than showing steep run ups like it has in the past.
Valuations
Titan Industries posted an EPS of 97.8 for FY11 and is expected to post an EPS growth of 30% in FY12 thus taking estimated EPS of FY12 to around 127. With an EPS of 127 and stock price of 3770, it relates to a P/E of 29.6. One year forward P/E of 29.6 is looking okay valued for Titan Industries that has enjoyed 42 kinds of P/E in the past. This makes me give a HOLD rating to the stock and definitely not fresh purchase. FY13 estimates suggest that Titan is going to post an EPS of 162 which relates to a P/E of 23. The max I can give a target to Titan is around P/E of 25 for two year forward earnings.
The only downside risk to Titan is if it ever fails to lift up to the earnings expectations. If any quarter Titan fails to deliver as expected, the stock will see further downgrading as the only way high valuations are justified if the stock delivers more than it is expected to.
Hold Titan Industries with targets of 4000, 25x FY13 earnings. Fresh Accumulation is not recommended at these levels. If one wants to do fresh buying in Titan Industries, then wait for the levels of 3,250 which is 20x FY13 earnings. From there an upside to 4000 looks pretty decent.
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