Friday, June 2, 2017

Is Galloping Eicher Motors' Share Price Justified?

Eicher Motors Ltd. Company Logo

 Actual Question:

 How did the share price of Eicher Motors shoot up to INR15800? What triggered this steep increase?


Dear Friend!

I don’t know from where you got the number INR.15800 with reference to Eicher Motors Ltd.’s share. The current price is Rs.29,180 a piece.

Of course the price of the share has been rising continuously and has risen by about Rs.6000 (about 26%) in a span of just three months.

The reason for the continuous price is the bullish ‘Buy’ calls given by almost every brokerage in the country with great company performance expectations.

But, is all this euphoria really justified?

Is it fair to expect the company to deliver performance in exact synch with market expectations?
There is no doubt that Eicher Motors is a wonderful company, but while the share price can soar 26% in three months easily, it is impossible to deliver rise in the turnover and profits 26% in three months!

Please look at the graph below:
Eicher Motors' EPS versus Price Growth Comparitive Graph

You can see how dramatically the gap between the EPS and Price Rise is widening.

Now let us focus whether the Eicher Motors share is in the buy zone as per value investing norms.

Table Evaluating Eicher Motors Stock's Market Conditions

We can see that Eicher Motor’s share is very, very expensive and unaffordable. It is not wise to invest in any share at such high valuations.

Please note that it is not the fault of the company - it is the market’s fault. The company is delivering excellent results, but the market is unjustifiably enthusiastic.

In conclusion the galloping price of Eicher Motors Ltd.'s share price is entirely unjustified and unsustainable and imposes an unfair burden on the company to ever deliver superlative performance.

Suggested Further Reading:
Thank you,

With Best Regards,