Trent stock trades at 216 times earnings. Is it still cheap?

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Subscribe to enjoy similar stories. As many as 29 Tata Group stocks are listed on the stock exchange, of which five are already in the Nifty 50. From 30 September, another multibagger Tata Group stock will enter the benchmark index.

This stock surged almost 1,430% in the past five, giving the company a market cap of ₹2.7 trillion. If you think Trent’s rally from ₹500 a share in September 2019 to ₹7,600 in September 2024 has resulted in irrational valuations, this article is for you. We often categorise investments based on factors such as valuation, fundamentals, management and story.

But once in a while there comes a stock that defies all of these and showers investors with remarkable returns. Trent is one such stock. Let’s dig deep and see whether the surge in Trent’s stock aligns with the company’s actual performance.

The stock is trading at a price-to-earnings ratio of 216, well above its 10-year median PE ratio of 164.6. Wait a minute! The 10-year median is 164.6, which means the stock has been trading at a PE ratio of around 150 for a decade. That’s something worth looking into.

How has the stock managed to trade at such a high valuation and still grow at a 10-year compound annual growth rate (CAGR) of 50%? Also read: These trading firms are riding the capital market wave to mega returns Well, the stock price has moved in tandem with profits. Trent’s profit grew at a CAGR of 59% over the past 10 years while its sales grew at a CAGR of 18%. Profit growth is currently in the range of 100%.

Earnings per share (EPS) rose 135% to ₹29.48 in FY24, excluding exceptional gains. With these gains included, EPS works out to ₹40.39. This pace of growth is expected to continue in the near future.