Monday, July 19, 2010

Some auto-ancillary stocks have still way to go

Recently, I was delighted to see a big run up in share price of an auto ancillary company, ZF Steering Gear. The company came out with its quarterly earnings on July 14, 2010 and the share price went up from INR 300 to INR 390 in less than ten trading sessions. But I still feel the company has a long way to go before it runs out of steam. Why? The reason is the past performance. The company's share price is still more than 10% below the August 2005 high of INR 450. The profits have climbed from INR 20.5 Crore in FY2005-06 to INR 36.19 on TTM basis and is expected to do at least INR 45 crore this year. The book value of the company has increased from INR 77 in FY2005-06 to INR 150 FY2010. Thus P/E has contracted from around 20 to less than 10 and P/B has contracted from 5.8 to around 2.6. Disclosure: I have a long position in the stock.

Investors are well advised to buy a business that's so good that a dummy can run it, because sooner or later a dummy will run it. - Peter Lynch
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