At what price does Asian Paints become a good investment?
Subscribe to enjoy similar stories. At what price will the risk-reward equation in Asian Paints favour the investor? In other words, when will the probability of making money from the stock surpass the risk of losing money? Has that moment finally arrived, or is there more pain to come? Let us try and answer all these questions and more over the next few minutes. But first, a quick recap.
Asian Paints, the bluest of blue chips, is not having the best of times in the Indian stock market. The stock is down almost 30% from its 52-week high at a time when the broader index is down just 4%. This means Asian Paints has lost seven times as much as the benchmark.
Its performance over the last three years hasn't been spectacular either – it’s down 20% over this period while the benchmark index is up almost 40%. There is good news if you’re a long-term investor in the stock, however. Over the past 10 years, Asian Paints stock has delivered a compound annual growth rate of 13% versus the 11% for the benchmark index.
Also read: These 5 ‘hold-forever’ stocks offer high returns on equity and capital employed What about the next three or 10 years, though? Will Asian Paints be able to outperform the benchmark index or will its stock remain underperform thanks to growing competition in the paints industry? To answer these questions, we have to understand why the stock is down 30% from its peak and whether those factors are reversible. The stock fell 30% because investors don’t expect a company like Asian Paints to record a 40% drop in profits. Yes, you read that right.
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