Select stocks have seen severe price destruction in the last few quarters. There are many stocks that have halved in comparison to prices prevailing earlier. Here are a few stocks that have seen severe price destruction in the last few months. The question that now arises is: should you buy these stocks?
The shares of Yes Bank have fallen from levels of Rs 286 to Rs 50. It is now available at one fifth the value. Would Yes bank be a great bet for the long term?
To begin with let us see the positives. The bank has a solid brand equity and is the fourth largest private sector player in the country. The stock is available at a price to book of 0.49 times. Assuming the bank does not make losses the book value should not fall.
Now the areas of concerns for investors would be the bank's ability to raise capital. Even if it does raise capital the real worry would be the equity dilution, given that the bank shares are trading at just Rs 51.
Our own belief is that it might take at least a couple of years to resolve bad debt related issues. However, if non performing assets do get worse and the bank is not able to raise capital, the shares could sink lower.
Zee Entertainment has had just one problem and that is debt of the promoters. Recently, a few mutual funds sold the pledged promoter shares, which saw a crash in the stock price of Zee Entertainment.
Some of the mutual funds have given the promoters time until March 2020 to pay off the debt owned to them. If the promoters cannot raise money until then, mutual funds may continue dumping the stock of Zee Entertainment.
Another problem is that we do not see tremendous growth in the business itself. We believe that at best you maybe able to see growth rates in the range of around 7 to 10 per cent. As such there maybe genuine concerns on the valuations. It's best IF one avoids buying the shares of Zee Entertainment.
Shares in IndiaBulls Housing too have come crashing down from 52-week high levels of Rs 900 to the current levels of Rs 230.
The problem for the company is that constantly there are allegations against the company on irregularities, which have never been proved. This has done severe damage to the stock price. Recently, the RBI did not grant permission for the merger with Lakshmi Vilas Bank. This saw the stock come down sharply. However, one of the positives for the company is that it is highly liquid, with liquidity in excess of Rs 18,000 crores, which is enough to honor all obligations until Sept 2020.
If the company continues to declare a healthy dividend, it could result in a solid dividend yield. One needs to wait and watch for the results of the company, which maybe declared later this month. If it continues to maintain the same dividend that would be interesting.
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