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Why This Stock May Give Solid Returns For Investors?

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If you have an appetite to take risk, this stock maybe a great bet at the current levels. However, we are analyzing the pros and cons of the stock, with a conviction that this stock maybe able to deliver good returns from a 2-3 year perspective. Take a look first at the reason for the sharp fall in the shares of PC Jeweller and then the reason for you to be buying the stock.

 

PC Jeweller: Why the stock has fallen so sharply?

 

This stock which had a 9 per cent shareholding by a single Foreign Portfolio Investor (FPI) was dumped and the share price collapsed from levels of Rs 500 to Rs 136. This FPI may have had its own reason for selling.

There was another reason apart from the selling by this Foreign Portfolio Investor. There was some linking of PC Jeweller to Vakrangee, which itself was investigated by SEBI. Vakrangee recently saw its share price collapse, after the auditors resigned.

What was the relationship between Vakrangee and P C Jeweller? The latter has time and again clarified that it has no business dealings with Vakrangee. And, Vakrangee itself has stated that the buying in PC Jeweller shares was part of its treasury operations.

Why This Stock May Give Solid Returns For Investors?

Now, the second reason was transparency, which may have led to some collapse in the share price of P C Jeweller. It seems some shares were transferred by the owner to a relative. This may or many not be material for some.

Why you should be buying the stock of P C Jeweller?

1) First, is the price destruction from Rs 500 to Rs 136, where the stock suddenly becomes very cheap. In fact, for a retailing company, a p/e of 9 times is hardly justified.

2) The company has announced a buyback of shares at Rs 350 per share. So, you are getting the stock at Rs 136 and PC Jeweller will at some later stage (the board has approved and a date needs to be fixed), buy a part of its shares at Rs 350. Only a cash rich company can announce a buyback.

3) The promoters of PC Jeweller are not participating in the buyback, which means ordinary shareholders can surrender more shares. This also means that the intent of the management is good, given that the promoters do not want to sell the shares in the higher buyback price of Rs 350.

This also means that the promoters shareholding would increase once the buyback is completed.

4) We went through the recent presentation of the company and PC Jeweller has made a nice presentation, where it has highlighted the various branches opened in a number of places. This goes to show that it is "business as usual" for the company, despite the distraction and collapse in share price.

5) The promoters have not sold any shares and their shareholding remains way above the 60 per cent mark.

6) PC Jeweller, can easily report an EPS of Rs 16 to Rs 20 for FY 2018-19. At the current market price, the shares barely trade at 7-8 times p/e. This is very cheap when compared to most retailing company. The stock is worth taking a look for those willing to buy.

GoodReturns.in

Read more about: p c jeweller
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