Everything works in cycle. There is nothing that works in straight line. Stock market is no different either. If you buy something at the wrong time then despite business being good and management being good you may end up with losses. Now value investors will tell you hold it for long term if everything is great. That is wrong because there is opportunity cost too. While your stock is in red other stocks are making more and more green. You have to cope with that too.
Ultimately there are no prizes for holding great business but only your profits can help you in paying the bills or buying something that you desire. All other things in market howsoever great must result into better returns. The only thing that should matter to you is your CAGR.
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Salzer Electronics. MCap 205 Cr. CMP 128.
Company is into business of manufacturing electrical installation products and components. You can click on the name above to see the product range in detail.
Let’s look at the price action of the stock which is non negotiable for us –
This is weekly chart. As you can see stock is forming a reverse head and shoulders pattern. For quite some time even before corona crash came it was under pressure and trading below 140 level. Corona crash led to stock crashing from 130s to 50s. After that stock has been undoing all that damage and recently in Dec 2020 stock was able to made highs of 153 which is highest since Oct 2018. Clearly market participants are not averse to this stock anymore. But there is no clear likability for the same either as of now. In early March 2021 stock again attempted to break out of that consolidation but it failed but you can see the large volume.
It looks like bullish sentiments are subdued due to selling by Sundaram MF which had during March 2020 5.62% stake which has been consistently reducing and currently is near 2.67%. This selling may keep stock under pressure for sometime or if buyers prevail then seeing the run MF house may exit quickly. Not much downside visible from here thus.
Even though it is barely 200 Cr MCap company the float is large in terms of percentage. That means significant desirability to own the stock must be there for it to move big. If there was same money chasing few shares then move it will likely be bigger.
On normalized basis you can expect it to post the EPS of ₹16-20. Even from valuations perspective there is no outrageous situation.
It is looking good in the range of 120-130 although momentum will come only once stock is able to sustain above 145. It may happen after few weeks to 2-3 months and that is hard to say.
Clear red line below which more pain may ensue is 116 on daily closing basis.
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Do your DD and run it through your checklist. Let us know what you think about this idea.
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