Wednesday, August 18, 2010

Is Retail a Bubble?


Is Retail a Bubble?

Retail stocks are currently valued at extraordinary PE ratios. The analysts coming on TV keep on repeating a simple mantra - the future looks bright.


Now, I have heard this before, during the IT boom, during the SEZ boom, during the Real estate boom....

TRENT for example, has a market price of 1052. Its 2010 earnings are 0.79, yes seventy nine paisa per share giving a PE of over 1000. If we take the Q1 earnings (Rs 4) and multiply it by 4 to get 2011 EPS, that comes to 16, giving a PE of 65. Same story for Shoppers stop.


Why I worry (a habit!)

Today morning while I was on Awaaz, I heard a strong endorsement of retail stocks from the anchors as well as from an analyst. This led to to worry about retail investors (you and me) getting pushed into buying these stocks. Always look for value in an investment. Growth stories are good for trading with a stop loss, but investing in them, specially without adequate knowledge, is a disaster.

6 comments:

Sunil Malhotra said...

Thanks for a cautioning. I am a novice in stock market and always reading your blog and it's alway educative & SOMETIMES PROFITABLE, like when you had said at the time of nuclear deal market will go up and I had made 5% in a day.
I am a novice and wondering if nifty PE is high as date and I have compared it with previous 10 years data here is the result
11TH Feb. 00 = 28.47
29th Aug 01 =15.3
31st March 03 = 13.36
02 Jan 2004 = 21.46
25 may 04 = 13.88
04 Jan 08 = 28.33
22 Oct. 08 = 13.18
18-Jan-10 23.57
06-Jul-10 21.93
Will market will fall again within One/Two Years that nifty PE is less than 14 that makes a pitch for buying for investment in select stocks? Please do not laugh at above since I have said I am novice and this may be crude method of prediction.

Shazia said...

hi sir,
Do you think a retail index is on the cards? If that is so.. you might be right about a bubble in it!!
Shazia

rajv malik said...

namaskar sukhani ji,

you have made a very valid point. however the question is that who are these analysts who want to push such stocks and trap the common man ? what is behind their selfish or should i say ulterior motive in promoting such stocks ? are they themselves a bunch of ignorant people or are they a part of some kind of big racket ? why the channels should be a party to this kind of wrong promotion ? are these channels true friends or enemies of the common investor ?

these are issues that should be addressed by honest and truthful person like you and so many others like you in the profession ? or else a time will come people will not bother about such analysts.

i wonder if this comment cum query of mine will be used and answered by you through your blog ? or will be censored ?

warm regards

gulshan said...

Why is that you are using fundamental terms in the blog for past few weeks?

If this indicate that TA should be based on fundamentals?

I am confused?

Follow TA or Fundamentals or both of them.

Please help.

Mind Without Fear said...

Thanks for alerting me/us to this.

In any field of knowledge/work/activity, there are people to listen to and people NOT to listen to.

You are one whom I listen to and try to understand.....

Nikhil said...

sir, what do u think abt Gann's trading techniques? how useful so u find them?