VALUATION TRAP
Investment in a Good Company, Brand, & Growth at a Great Valuation. Hidden is a Decline in future growth rates, competitive intensity, and more.
Moats are eating the Fort.
Earnings grow but end up in single-digit to Zero/-ve cagr for 5-10 yrs. Slow De-Rating.
Over the last 10-15 years the GARP strategy = Growth at Reasonable Price shifted to buying GAAP = Growth at Any Price. This strategy worked as Growth in many of these companies continued to be very high. The most critical component is Growth. Going forward not many Indian companies would be able to grow at 15-30%. Many stocks can go into Valuation Trap.
For the last 10-15 years Valuation as a criteria for Investment has taken a backseat. Anything cheap on valuations even if business is good considered a Value Trap and avoided by the Market. But a lot of big winners have started coming from this segment in last 1-3 years. ( Old Economy stocks, Power, PSUs – Power, Railways, Banks, Oil etc, Transformers, Music etc)
My personal view next 1-3 years.
Deep Value + Optionality + Decent Promoters > Great Companies, Great Brands, Great Growth at 30-100 PE and 3-15x Sales.
Have discussed this in our recent Webinar – Longer the Consolidation, Steadier the Trend
