The Phenomenon of Conglomerates – A Case Study of ITC

ITC Limited has nearly doubled since February 2022 and now it is trading at its all-time high of Rs.443 (8^th June 2023). Most brokerage houses have been issuing research reports that recommend it as a Buy or Add. Now, as a thinking retail investor, how do you look at it? How do you decide if you will buy it now if you missed putting it in your portfolio or will you hold it if you are already sitting on some nice long term capital appreciation?

One important lesson Karan learned was the significance of evaluating a stock's market value in relation to its intrinsic worth. Just as a precious gem's value can be determined by its clarity and cut, a stock's true value lies beneath its market price.

When you buy a Rs.25,000 mobile or a refrigerator, you would spend quite some time researching for the machine with the best package of features, reliability, prestige value, and cost. That would often take hours on the internet and a couple of visits to the store; so why not spend less than an hour on the stock you have been tipped to buy?

Commodity cyclicals can be one of the most challenging sectors to analyze, comprehend and profit from due to the market participants' inability to accurately predict the movement of underlying commodity prices, which influences the fluctuation in the prices of these stocks.

Momentum strategy aims at buying high and selling even higher.

Discounted cash flow, which is popularly known as DCF valuation, denotes the intrinsic value of a security as the present value of its expected future cash flows. When applied to dividends, the DCF model is the discounted dividend approach or dividend discount model (DDM).  

The valuation of a company is a critical aspect for analysts and investors studying a potential company for investment purposes. The most commonly used, valuation metric is the price-to-earnings ratio which is, defined as the ratio for the valuation of the company, which measures its current share price relative to its earnings per share (EPS).  

Enterprise value-to-sales (EV/sales) is a financial ratio measuring the company’s total value (in enterprise value terms) to its total sales revenue. To simplify more, it is EV per dollar of sales. This means that the higher the ratio, the more ‘expensive’ or valuable the company is, and vice versa. The ratio is used for financial analysis and valuation strategies while doing research for a potential investment. 

Investors prefer derivatives as they facilitate price discovery, strengthen the underlying asset's liquidity, and work effectively as a hedging tool. 

Return on Invested Capital (ROIC) and ROCE (Return on Capital Employed) are financial ratios to understand how efficiently a company invests its capital. 

A ‘derivative’ is a financial contract or a security with a price. Derivative contracts come in many different forms, such as forwards, futures, options, and swaps.  

In this educative article, we shall introduce you to the basic banking terms that are a ‘must-know’ in analysing financial reports.