This is another stock which has a high retail holding and thus one of the most searched phrases these days is to why Tata Motors is falling so much lately. Thus I thought it should be a good topic to discuss and share my view with my readers. Tata Motors shares have fallen from almost 1400 levels to 700 today, halved where as market index has just fallen less than 25%. Tata Motors is just another stock facing problems with high interest rates and global slow down which is hurting it’s earnings outlook.
When interest rates start going up, four wheelers and heavy vehicles segment in the auto sector starts facing problems. Their sales don’t grow and in some cases even comes down. Due to lower sales figures these auto companies shares starts crashing as people take out money from these companies and look for better alternatives in the market. Why Tata Motors is falling down the most in the whole auto sector is because of the JLR front. Due to slowdown expected in US/Europe or say recession fears, it could take a big hit on the JLR sales of Tata Motors. Last quarter Tata Motors disappointed with flat profits YoY and even margins came under pressure. So all of a sudden earnings outlook has gone weaker and people are selling the stock. I won’t be surprised if Q2 FY12 is disappointing as well.
Tata Motors Shares Looks Cheap
Tata Motors indeed have some problems but the kind of selling we have seen is not justified at all. Tata Motors has come down to a 5 kind of P/E multiple and that is sad. Tata Motors posted an EPS of 135 for FY11 and the stock currently trades at 700, P/E of close to 5. What makes it worse that there could possibly be more fall here as global worries increases day by day. Even if they post a degrowth of 10-11% and EPS comes down to 120, Tata Motors is still cheap, specially if further fall is seen.
Should you buy Tata Motors Shares?
I am expecting Tata Motors to fall some more from current levels, perhaps 7-10% more and then Tata Motors could possibly start looking even more cheap. If Tata Motors falls close to 650, then one can start accumulating the stock but enter in small quantities and use the buy on decline approach where you buy little quantities in every 5-7% decline. That way you can get a good average if the share falls more. It is very hard to predict the bottom when panic selling is happening, so take a good strategy of buy on declines and keep accumulating this good quality share. In the long term you will make a lot of money as you are buying a good company on such a cheap valuation.