The future seems bright to me for Adani Enterprises. The reason is simple that Adani companies have a moat of deep pockets. Although, we do have agree on one point that most of the Adani Group companies are deeply overleveraged and trade at insane valuations. So, debt is something which will definitely decrease over time for the companies as they generate enough strong profits and maintain that over the years to come. Coming to the insane valuations that these companies trade at for that only two things can make the valuation come in comfort zone :
- The price of the share goes down relative to the earnings growth. But then that will give you a loss as such the stocks of the group are definitely volatile.
- The best way is to deliver exception growth in earnings and to sustain the same. If they can do that on a sustainable basis, then this can further lower the valuation of Adani companies and bring it under comfort zone so that investors can then start investing in same.
I personally have an Adani stock which is Adani Wilmar. I hold no other Adani stock except this one and the reason for this premium depends on different reasons like longevity of growth in the sector in which this stock is, strong international tie-up with Wilmar International and the market leader position of the company in different edible oil segments. This along with deep pocket moat is essentially which gives the stock a premium valuation, on top of that it is somewhat overvalued but I won’t call it insanely overvalued as compared to other Adani stocks.
Let us have a look at Adani Enterprises :
The current price at which Adani Enterprises is trading at is 3451 and definitely if you see the return profile above the stock is highly volatile, there is no doubt in same.
The stock has generated insane wealth for the shareholders as well but the time-tested history clearly shows it is a volatile stock. The order book of Adani companies and the deep pockets moat is something that makes me believe that it can have a good future. But again if there is no valuation comfort then I really refrain from investing in such stocks because there is not much on table for investors in that case. Buying a stock at insane valuations or at a time when its margin has peaked is definitely like putting your hand on a knife.
Let’s have a look at the VALUATION chart as well before we end with our discussion :
The valuation is definitely a lot higher than its medium 5-year period valuation of 27. The current valuation if you see is close to 327 and it has already expanded a lot so I don’t see much upside from here since there is no valuation comfort. If the share price needs to appreciate then it needs to deliver solid numbers and sustain that in order for the share price to go up.
DISCLAIMER :
This post is just for educational purposes and is not a recommendation in any form. Please do your own due diligence before investing in any stock.
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