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Looking to find value from the current fall, we’ve compiled a list of 10 stocks. trendline Those in the affordable PE range whose real estate value exceeds their market capitalizationand without a debt-to-equity ratio of less than 1.
Companies use fixed assets to generate income over the long term. It appears in the balance sheet at net book value minus depreciation and any impairment charges.
The filtered top 10 stocks where the value of real estate is more than the current market capitalization includes names like,,,,,,, etc., among others.
Can all stocks be classified under value bets? Probably not, suggest the experts.
“Most of the companies on the list have businesses that are cyclical in nature. These companies have had additional assets over the years; However, they have been unable to sweat those assets to get any meaningful ROCE (return on capital employed),” said Siddharth Oberoi, founder, Prudent Equity.
Return on Capital Employed (ROCE) means the amount of earnings or profit of a company taking into account not only shareholders’ equity but also debt and other sources of funds.
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“Only Tata Steel and
Due to the rise in steel prices in the last two years, we have been able to achieve double digit ROCE. Earlier, even their return on capital was very less,” he said.
agenciesSo far in 2022, 7 out of 10 stocks have lost up to 39 per cent. In the traditional sense, a company is considered undervalued if its market value is less than the fixed assets.
However, in reality, this is not always true because the net realizable value or market value can be materially different from the book value.
“You cannot ascertain the true market value until the company disposes of some of its assets or is liquidated. In the case of liquidation, historically in India, immovable properties have been given a haircut or market value. is sold at a low price,” said Puneet Patni, Equity Research Analyst,
Told.
“In short, this type of data is relevant only for those companies which have assets that are marketable or the market value is easily ascertainable e.g. banks, NBFCs,” he said.
What are the other parameters to track?
real estate companies market cap These companies are not necessarily undervalued. Experts recommend that investors use other metrics before deciding to buy or sell a company.
Rohit Khatri, AVP of Fundamental Research, said, “While having more assets is a positive for any company as assets have the potential to generate income, it is also important to look at the liabilities of the company.”
Broking Ltd. said.
“A prudent approach would be to look at the book value of the company, which is assets minus liabilities, which would give a true picture of the financial position of the company,” he said.
Khatri further said that prima facie assessment shows that most of these companies operate in capital intensive business which would require high fixed assets.
Patni of Swastika Investmart Ltd advises investors to understand the fundamentals, management quality, competitive landscape, cash flow, return ratio like ROCE, ROE, ROIC, etc., and debt and leverage ratio.
What should investors do?
Investors should analyze the various parameters mentioned above to decide whether to buy or sell. Most of the stocks may remain in consolidation mode but some of them like Tata Steel,
HPCL and Birla Corp could be a long term game.
It is important to track how the company is using its assets using the Fixed Asset Turnover Ratio. Experts suggest that the expansion ratio means that the company is able to generate higher revenue without any change in fixed assets.
“It is important to track industry growth prospects, company fundamentals and a general checklist of valuations before investing. Within the above stocks, most of these belong to highly cyclical sectors and have seen good correction due to growth or margin concerns,” said Khatri of Religare Broking Ltd.
“Hence, while we are constructive on names like Tata Steel, BPCL, HPCL and Birla Corp, to name a few, poor performance in the short term cannot be ruled out,” he added.
(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. They do not represent the views of The Economic Times)
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