If the Adani stocks trading at more than 50x sales are able to sustain for next 3 years, we will enter a new era of valuation.

And we have never entered in the new era of valuation before.

There was only one since the beginning.

If you know, you know.

@soicfinance @ishmohit1 Learning and taking inspiration from you sir..🙏🏼🙏🏼

A word of advice and caution. When you buy a High Pe stock. Make sure that you are very certain about the growth. Plenty of good and bad examples

Eicher=Growth stopped, Got derated.

Pi Industries= At 52+Pe in 2015, growth continued (5bagger since then)

Symphony=Growth stopped as more competitors copied them, painful time correction.

Astral=Kept growing and entering newer adjacencies since 2015 when it was at 60+ Pe. (Been a 10 bagger since then)

Page Industries=Growth stopped as the company matured. No returns for last 4 yrs.

Bajaj Finance= Kept growing (barring Pandemic). Kept rerating with the earnings growth.

HDFC Life=Been absurdly valued since 2018. Leading to very poor returns.

Relaxo=Kept getting rerated on back of earnings growth.

High Pe means market is expecting strong earnings growth. What happens when it fails to come? Likely derating or painful time correction.

Paying a high multiple, you need to make sure that the growth is certain.

What I do to grasp such opportunities or to ignore them is to have a mix of deeply valued companies (like some financials I own) with Companies where I think they will grow at 30-35%+ (Navin).

This is what my framework is:-

Pf=High Pe+Already seen value+Strong earnings growth

"An Introduction to Valuation" by Aswath Damodaran is an excellent doc for learning more about Valuation, differences between Intrinsic Value (DCF) and Relative Valuations (their basics, Pros/Cons, when they work better...).

cc: @dmuthuk

Some of my fav slides from the presentation.

✔️Misconceptions about and approaches to Valuation.

A thread: How to value? 🏦💰❓

Sharing my learnings from my journey so far.

Initially when I started out I used to ignore what anybody would have to say about their style of valuing a business and I would blindly copy what Benjamin Graham’s book, The Intelligent Investor had to say.

Later came a stage where I realized Benjamin style was not working.

Before we get into the learning, here is the background to it:

If you have been following me for the past 1 year you would have noticed how my valuation method has changed.

I used to struggle a lot with valuation and it would be at the back of my mind the whole day thinking what are these investors doing to value. I tried DCF but that didn’t work for me. (Don’t hate me for that, its my personal choice)

I used to attend Bloomberg Quint’s talk on Zoom, message investors, read books, etc. to figure out: How to value? (The frustration had got to a level that I took break from investing for 3-4 weeks)

Once in a while one should study the company which lacked the execution, which always over-promised and under delivered. Check how market valued it over the period of time. As it gives us the framework to avoid potential capital allocation mistakes i future. 🧪⚗️