Biggest Wealth Creator: Stock Soared ‘20x’ from Pandemic Low to Rs 10,000!

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A stock market is a place where most of the time patience of an investor plays a key role in determining his success in his investing journey. You might have also come across numerous names of true wealth creators which have rewarded investors’ patience such as Infosys (NS: INFY ), Eicher Motors (NS: EICH ), Page Industries (NS: PAGE ), MRF (NS: MRF ), Reliance (NS: RELI ), and the list goes on. 

When looking at the list of biggest wealth creators in the last two years, after Covid-19 hit the shores, quite a few names pop up, all thanks to the massive bull run from March 2020 lows. However, one stock that tops the list, delivering a kind of return in 2 years, that’s ideally thought of in 2 decades is from the stable from one of the country’s most prominent business groups, a Tata Group company - Tata Elxsi (NS: TTEX ).

Tata Elxsi operates via 2 segments - System integration & support, and Software Development & Services and has soared to a market capitalization of INR 58,922 crores, becoming the 84th largest listed company on the NSE. The share price of Tata Elxsi crashed to a low of INR 499.95 in March 2020 global meltdown. By then the stock had already registered an all-time high of INR 1,490.9 in July 2018. This means, that investors never saw this rate for a little more than 2 years, but eventually, their patience was rewarded. 

Image Description: 1-year comparison between Tata Elxsi (Blue) & Nifty IT (Purple)

Image Source: Investing.com

As the technology companies became the go-to investment theme for investors, a gigantic rally in the IT sector helped Tata Elxsi stock to sharply recover from the pandemic lows quite swiftly which was followed by a near-vertical rally for the next two years. In fact, when the technology stocks across the globe had taken a heavy beating this year, with the Nifty IT index falling over 33% from the record high, Tata Elxsi kept on outperforming the sector. In fact, during the last 2 years, there has never been a monthly correction of more than 15.5% on a close-to-close basis. Today, the stock hit an all-time high of INR 10,374.95 on the NSE, giving investors a return of over 1,975% or more than 20 times from the pandemic lows. 

Exorbitant Volatility in 2022

This might seem a smooth sail for investors, but it couldn’t be farther from the truth. The month of March 2020, saw a correction of 28.73%, which is very difficult to sail through for retail investors. A drawdown of this kind is not an easy job to digest, especially if the concentration of the stock in the portfolio is high. The current year has especially been a volatile one. While there was a massive surge of 29.6% in January 2022, it was followed by a decent plunge of 15.4% next month. In March 2022, the stock rallied by 37.4%, again to fall back 12.3% in April 2022. As of August 2022, the stock is up 18.53%.

Sky-High Valuations

While a 20x price jump can clearly be seen on the screen, it's difficult to say how much it justifies the valuations. From the conclusion of FY20 (almost when the pandemic started) to FY22, the company’s revenue has grown only 50.77% (from INR 1,668.27 crores to INR 2,515.33 crores). The operational efficiency has improved over these two years, but the net income has seen a jump of around 114.62% ( from INR 256.1 crores in FY21 to INR 549.66 crores in FY22), which again raises questions about the price surge.

Talking more precisely on the earnings front, the stock is currently trading at a P/E ratio of an eye-popping 107.2, while the sector’s average is hovering around 26.61. It is rare to find IT stocks at such sky-high valuations, especially after their noticeable plunge this year. For comparison, L&T (NS: LART ) Technology Services Ltd (NS: LTEH ), Oracle Financial Services Software (NS: ORCL ), and Persistent Systems (NS: PERS ) are trading at a P/E of 39.56, 15.26 & 39.19, respectively. Even the largest IT stock, TCS (NS: TCS ) trades at a P/E of 32.02.

Therefore investors who are holding long from the lower levels might be rewarded with a close exit level in case a meaningful correction starts to materialize.

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100
  • Harsh Jain @Harsh Jain
    which stock to buy tommorow
    Like 0
  • Harsh Jain @Harsh Jain
    which stock to buy tommorow
    Like 1
  • aman mehra @aman mehra
    Please share some insights on Honeywell Automation Charts. Will it fill the gap on the upside?
    Like 0
  • aman mehra @aman mehra
    Please share some insights on Honeywell Automation Charts. Will it fill the gap on the upside?
    Like 0
  • Ashish Patil @Ashish Patil
    correct
    Like 0
  • Nikhil Tripathi @Nikhil Tripathi
    No price is right or wrong. You should exit now. Utilise the profit and allocate it to undervalued stocks.
    Like 0
  • Suresh Kumar @Suresh Kumar
    What should be exit price
    Like 2

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