One stock which is a certain avoid

June 21, 2011   ·   0 Comments

One stock which is a sudden avoid in spite of making new highs in every few months is Jubilant Foodworks. The company has a famous franchisee brand – Dominos Pizzas. Company came with its IPO at price of 135 Rs. per share last year in January & since then the stock has not looked back. Last time I checked stock is quoting at 800 Rs.

www.stockssavvy.comWhat is trigerring investor to bet big on the stock:

  • The popular chain has signed an exclusive master franchise agreement with Jubilant Foodworks that also manages the Domino Pizza franchise. The first store will be operational early next year and Jubilant will open about 30 stores in the first three years of operations.
  • India had a market share of 2% for pizza which is very less as compare to other countries. On a average, it is expected to grow to 8-10% in next few years. As India is a vast economy & population, the 8-10% share certainly will be a very robust. Also, as the company has a sizeable share in the pizza industry in India makes investors take this call.
  • Robust earnings growth momentum for next 5-7 years where company can easily continue to grow30-40 % for next few years without taking any pause. Management too is die hard focused & certainly looking in right direction.

Why the stock should be avoided besides of its such Strong Fundamentals:

  • One of the principal of investing is the Price at which one is investing in the stock. The Stock has run quite hard in last few quarters & lot of positive news is factored already in its price.
  • Company is trading at an EPS of 11.1 & P/E of 70 is indicative of the tremendous run it had. The share make become an operator play watching its bull run & people may get trapped at higher levels making a highly risky bet. Risk to reward ratio is not favorable for the investors to take fresh investments in the stock. The stock may still run to new levels & nobody can predict where it will stop but once it do it will take years for the stock to come back to its Highs.
  • Just take a contrarian view & compare it with Infosys in the times when company use to post more than 100% earnings growth was still not able to sustain the P/E of 80-100. Here we are talking about Jubliant foodworks will post growth. What if it doesn’t?

I just hope investors will take a thoughtful approach before jumping with the new investments in this stock.

Food for thought: I love pizzas when it comes to eating.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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