Olectra Greentech Zooms 250% in 5 Months. More Gains Coming?

livemint.com:

small company which looked fundamentally very sound. It had consistently earned an EPS of ₹4 to ₹5 per share over the last many years and had a reasonably good balance sheet. The fear and panic in the market on account of the Coronavirus pandemic led to the stock price crashing to ₹20 per share.

At this price, the stock was available at a mouthwatering PE of 5x, assuming an EPS of ₹4 per share which it had consistently earned in the past. A PE of 5x means an earnings yield of 20% (inverse of PE). An earnings yield of 20% can be thought of as an FD that is paying you 20% interest every year.

Isn't that wonderful? Now, even if the company achieves no growth in the future, you are still earning a cool 20% return on your investment. In fact, even if the EPS was to crash by 50%, the earnings yield would have come down from 20% to 10%, which is still good in my view. So, the stock did look attractive even after assuming a 0% growth rate in earnings or at worst, a 50% hit in earnings.

Well, an investor in the stock back then would have pocketed a cool 1,100% return right now. The stock, Gulshan Polyols, is a 12-bagger from that price as its earnings did not crash by 50% but is currently 2x higher than what it was in FY20. This is the power of inversion.

Using this theory, you arrived at the conclusion that your downside seems well protected even after a 50% drop in EPS and you let the upside take care of itself. Of course, you would have arrived at the same conclusion using a straightforward method of projecting the company's earnings 3 years out and assigning a proper PE multiple. However, the theory of inversion led to a much better perspective in this case and allowed you to focus on the downside more than the upside, which