Desperate house calls for stock recommendations

It is that phase of the bull run when analysts are unable to justify the valuations of shares by conventional ratios. Nevertheless, stocks have to be sold to eager clients, and there has to be some story or fundamental hook to it.

As the joke goes,

  • If a stock cant be justified as a good buy based on the traditional price to earning multiple, then market it based on its price to cash earnings multiples.
  • If it still doesnt look cheap, try the enterprise value to operating profits (EV/EBIDTA) ratio.
  • If that doesnt work, look at the market capitalisation as a multiple of sales.
  • If that too fails, point out the embedded value in the stock in terms of holdings in group companies and other investments.
  • And if everything fails, the scrip can still be marketed as a concept stock , only for the discerning investors with a long-term horizon.

But above all, get the client to buy it!

Source: ET

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