70% of people said that buying a TCS at the current valuation for 5 years is a good bet and most of you commented that it is good for the next 5 years.
Well, I'm just trying to share my thoughts on this, and this is not a recommendation to buy/sell the stock.
D: Not invested.
Well, I'm just trying to share my thoughts on this, and this is not a recommendation to buy/sell the stock.
D: Not invested.
For the last 4-5 years period IT sector deliver great returns and that is mainly because of PE rerating rather than the earnings growth, this rerating happened because the sector will be expected to grow at double digit rates for the next 5 years.
Gartner said in its report..
Gartner said in its report..
IT spend will grow at 9% for the next 5 years and the industry body NASSCOM estimated that the IT sector will grow at 12% for the next 5 years.
These are positives for the sector, but this positive news is already priced in.
Now look at the valuation of TCS.
These are positives for the sector, but this positive news is already priced in.
Now look at the valuation of TCS.
Now it is trading at 38X ( based on the last 4 quarters earnings) as against the 5 years average of
25.5 X.
So, it is trading at a 50% higher than its last 5 years average PE.
This show that the expected growth is already priced in.
Well, let's assume it'll grow at 12-14%.
25.5 X.
So, it is trading at a 50% higher than its last 5 years average PE.
This show that the expected growth is already priced in.
Well, let's assume it'll grow at 12-14%.
For the next 5 years because of digital transformation, but will this growth sustainable after 5 years?
There will be two possibilities:
1. If earnings growth continue even after 5 years at the same rate, & continue to trade at current PE, you can make around 12-14% CAGR for
There will be two possibilities:
1. If earnings growth continue even after 5 years at the same rate, & continue to trade at current PE, you can make around 12-14% CAGR for
the next 5 years / with divided 16% and this is at the highly optimistic condition.
2. Suppose the earnings will revert to a single digit, say 7-8% then the PE will be derated & in such case, the return will be less than the FD returns.
Investing is probabilistic, so consider
2. Suppose the earnings will revert to a single digit, say 7-8% then the PE will be derated & in such case, the return will be less than the FD returns.
Investing is probabilistic, so consider
These points in your research, as I said this is not a recommendation to buy/sell the stock.
Disc: Not Invested.
End.
Share your thoughts on my viewpoint, so this discussion will be helpful for people who are doing the research.
Disc: Not Invested.
End.
Share your thoughts on my viewpoint, so this discussion will be helpful for people who are doing the research.
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