I generally try and follow (1) above.
You see when I first bought they had the following value attributes:
Pantaloon Retail Traded at a
PE of 8 times and market cap to sales of 0.2 times sales and growing at 100% each year (that is what Biyani said and most of the investors thought that he could not - but for me that was already in the price)
TV 18 Traded at a
market cap of Rs 200 crores and a PE of 10 times to current year.
Trent Had
Rs 120 per share in cash on its balance sheet so you were getting the whole retailing business for Rs 40/share or rs 60 crores
Now all these stocks became value to growth (non value) in 3 years and that is where most of the money is made. A value stock will deliver returns only if it is backed by growth and there is almost no other way to create returns except then those listed below:
2)Land/investment sale
But in both the cases above as in many others investors would have to be very sure whether this process would happen or not.EVen if a spin off/ merger, stake sale happens the sharehoilders should be benefitted and unless that is done no one can make money.FOr instande if XYZ Ltd sells off its land and uses the money into other low RoE businesses then theren was no value added. That is why the management becomes very important.
Most of the times these value unlocking measures are not implemented and investors are left holding a stock that looked value for the entire length of the bull market period thinking of themselves to be patient, long term, value, non mommentum, non greedy investors.
There are many such stocks that have not moved and the experts keep calling them for the "patient, long term, value, non mommentum, non greedy investors." but the point is that this is what the investor is settling for when value has not got unlocked not thoyught of it upfront.
Generally the maximum money (multibaggers) are made when a stock changes its attributes from value to growth and then it can only out perform the market but to predict whether it would change from value to growth is all that takes to make a ten bagger.Most of the times it is the company growth rate that acts as a catalyst in this process.
Value stocks would deliver market driven rates of return through dividend. minor appreciation etc.
Edited by basant - 05/Oct/2006 at 7:54pm
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