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# Why Share Price is Not Important while Buying Stocks?

Why is a stock that cost Rs. 50 cheaper than another stock priced at Rs. 10?

This question opens a point that often confuses beginning investors: The per-share price of a stock is thought to convey some sense of value relative to other stocks. Nothing could be farther from the truth.

In fact, except for its use in some calculations, the per-share price is virtually meaningless to investors doing fundamental analysis. If you follow the technical analysis route to stock selection, it’s a different story, but for now let’s stick with fundamental analysis.

The reason we aren’t concerned with per-share price is that it is always changing and, since each company has a different number of outstanding shares, it doesn’t give us a clue to the value of the company. For that number, we need the market capitalization or market cap number.

The market cap is found by multiplying the per-share price times the total number of outstanding shares. This number gives you the total value of the company or stated another way, what it would cost to buy the whole company on the open market.

Here’s an example:

Stock price: Rs. 50

Outstanding shares: 5 Crores

Market cap: Rs. 50 x 50,000,000 = Rs. 250 Crores

To prove our opening sentence, look at this second example:

Stock price: Rs. 10

Outstanding shares: 30 Crores

Market cap: Rs. 10 x 300,000,000 = Rs. 300 Crores

This is how you should look at these two companies for evaluation purposes. Their per-share prices tell you nothing by themselves.

What does market cap tell you?

First, it gives you a starting place for evaluation. When looking a stock, it should always be in a context. How does the company compare to others of a similar size in the same industry?

The market generally classifies stocks into three categories:

• Small Cap under Rs. 1000 Crores

• Mid Cap Rs. 1000 - Rs. 10000 Crores

• Large Cap above Rs. 10000 Crores

Some analysts use different numbers and others add micro caps and mega caps, however the important point is to understand the value of comparing companies of similar size during your evaluation. You will also use market cap in your screens when looking for a certain size company to balance your portfolio. Don’t get hung up on the per-share price of a stock when making your evaluation. It really doesn't tell you much. Focus instead on the market cap to get a picture of the company’s value in the market place.

IMP Note: This article is written to safe-guard our readers who are new to stock market, and make them understand about the actual facts. We keep on receiving mails from our readers regarding the price range of stocks we covers under our Hidden Gems or Value Picks service. The misconception in mind of new investors is regarding the stock price, majority of them believe that if stock price is less, like below Rs. 50 or even below Rs. 10, changes of stock price appreciation is very high and they can buy more no. of shares rather than buying a limited no. of shares of high priced stock.

We have a reader base covering almost all major states in India and from 20 other countries across globe. During the last 12 years we have interacted with several investors seeking multibagger return from stocks.

It was 17th Dec 2011, we covered Cera Sanitaryware as Hidden Gem stock of the month at price of Rs 157, later it went up to Rs. 450 in period of 15 months. Based on strong quarterly numbers, attractive valuations and consistent performance, we suggested adding it up again in the range of 400-450 which was taken as a surprise by our members as we received several queries and feedback.

Below are some of the common queries of our subscribers which often lead them to opportunity losses.

1. How come a stock priced at Rs 450 can generate Multibagger returns?
2. Cera is almost 3 times moving from 170 to 450, why are you suggesting buy again?
3. Where is the room to generate Multibagger return from this level?
4. I don’t like such high-priced stock, please give me stocks priced below Rs. 100.
5. I want to buy more no. of shares, hence please recommend low price stocks below Rs. 10.

Cera Sanitaryware touched its life time high of Rs 9740 last year and currently trading around Rs. 7340, Cera is a 50-Bagger stock in 12 years from our initial coverage and is a 17X stock from our reiterated buy at Rs. 450, which was not liked by our subscribers.

The story does not end here, there is a long way to go. Our suggested stocks is with a view-point of 2-3 years at least and not just 6 to 12 months. If fundamentals of the company are intact, we would not suggest our members to do profit booking or exit. Investors who stayed away just because of high price simply missed yet another opportunity. We held Cera for long term and suggested complete profit booking to our members in the stock around 3500 - 4000 levels in 2017.

There is a general misconception among the investors that high priced stocks can't generate multibagger returns. They often think that high-priced stocks are overvalued. In terms of valuation, a 50 rupees stock may not be cheaper than that of a 1000 rupees stock. There is no co-relation between the valuation and market price of a stock. To understand whether a company is small or large, you must look at market cap of the company and not at stock price. To judge valuation you must have to look at Price to earning ratio, Price to book ratio, market cap to sales ratio etc.

Lets try to understand this with an example, Rajratan Global Wires share price was Rs. 54.77 on 30 Nov 2017 (stock split and bonus issue adjusted price, actual price was 639). Today the stock price is at Rs. 630 giving absolute returns of 1050% i.e. more than 11 times in 7 years against double digit return of Sensex in the same period. In fact, we already advised partial profit booking in Rajratan Global Wires to our Hidden Gems at Rs. 1300, booking returns of 2270% (almost 24X) in period of 5 years.

We suggested Buy on Rajratan Global Wires at price of Rs. 639 under Hidden Gems service on 30 Nov 2017 and if any of our subscribers have not invested in the company thinking he/she can get only 15 shares by investing Rs. 10,000 has made a big mistake. Today those 15 shares have increased to 175 shares on account of bonus shares issued by the company in the ratio of 4:3 in 2019 and later stock split of 1 shares into 5 shares (face value of Rs. 10 to Rs 2 per share) in March 2022. And the current share price of Rs. 630 is still seems very high for those who looks at low price stock.

There are many examples like above by which we can illustrate that there’s nothing called high price. Multibagger returns is not dependent on the current market price of a stock, so don't be afraid of investing in high priced stock. You need to look at fundamentals like future growth prospects of the company, PE ratio, PB ratio, ROE, ROCE, debt on books, EV/EBITDA, cash reserves along with other parameters to judge a stock whether it is undervalued or overvalued. We agree with you that judging valuation is not an easy task. So, take expert’s advise when ever required.

Another misconception among investors is to buy more no. of shares. They often think that its better to buy more no. of shares of a low price scrip (ranging below Rs. 10 or say below Rs. 50) instead of buying less no. of shares of high priced stocks. They often think that low price stocks can generate multibagger return quickly. During last 10 years, we have reviewed many portfolio of our members under Wealth-Builder subscription, we have noticed that many of their portfolio is filled with such low-priced stocks and most of those are in great loss because of poor business fundamentals of these companies. You may think that a two rupees stock can easily generate multibagger returns even if it touch to Rs. 10. At the same time don’t forget that the same stock can even come down to Rs. 0 levels which can evaporate all your investment giving you 100% loss! In terms of valuation a two thousand rupees stock may not be expensive than that of a two rupees stock.

Lets try to understand this also with a simple example, Lanco Infratech was a well-known company from Infrastructure sector. At the beginning of 2010 the stock was around Rs 55. After 10 years, it was hovering at just Rs 1.30 and today its not operational any more. Those who purchased the stock during 2010 are in 100% loss! Rs. 1 lakh invested in Lanco Infratech in Jan 2010 was valued at merely Rs. 2,000 in 2020, a complete wealth-destroyer! Isn't it? Those who bought this stock at levels of Rs. 30 and later again at Rs. 10 or Rs. 5 to average out thinking that stock has came down from all time highs of Rs. 85 are still waiting to get their buying price back. There are many such stocks like Suzlon Energy, GTL Infrastructure, GVK Power and Infrastructure etc which have continuously destroyed wealth of investors over a period of last 5 to 10 years.

We do not state that all low price stocks are wealth-destroyers, it all depends on the fundamentals of the company. So, do ensure that you check out the fundamentals and valuations while investing in stocks instead of looking at stock price. Please get out of the misconception that low priced stocks will fly high faster giving you extra-ordinary returns. Always remember that stock price is just a barometer, actual valuations of a company can be determined by its fundamentals.

If you wish to invest in fundamentally strong micro, small and mid cap companies which can give you far superior returns compared to major indices like Sensex or Nifty in long term and help you creating wealth, you can join our services like Nano ChampsHidden Gems & Value Picks & Wealth-Builder.

The stocks we reveal through Nano ChampsHidden Gems & Value Picks  are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Do write to us at info@saralgyan.in in case of any queries, we will be delighted to assist you.

Regards,
Team - Saral Gyan

# Multibagger Hidden Gems - Avg Returns of 126% in 3 Years

We thank you for your appreciation and support for making Hidden Gems as one of our most admired services. Hidden Gems ranks on top not only in performance but also on Google search engine. You can try it yourself by searching "Hidden Gems SIP" or "Unexplored Multibagger Small Caps" or "Best Hidden Gems Micro Caps" on Google, you will find our website www.saralgyan.in featuring on top in search results. It's your appreciation and word of mouth publicity which make our website featuring on the 1st page in Google.

It's a fact that 78 Hidden Gems stocks out of 120 released during the last 12 years have given more than 100% returns to our members. Moreover, 42 stocks out of these 78 are giving returns in the range of 400% to 7000% (i.e. 5-Baggers to 70-Bagger stocks). Stocks like Cera Sanitaryware, Camlin Fine Sciences, Acrysil, Balaji Amines, Kovai Medical, Wim Plast, Mayur Uniquoter, Dynemic Products, Roto Pumps, TCPL Packaging, Globus Spirits, Rajratan Global Wires, Stylam Industries, Control Print, Mold-Tek Packaging etc are some of our multi-bagger stocks which have given whopping returns in the range of 900% to 7000%.

You might think that investing in mutual funds could be one of the way to start SIP (Systematic Investment Plan). However, returns may not be that high which you can generate by directly investing into good quality small and mid cap stocks. Hence, we suggest our members to start SIP by directly investing in stocks every month. What you are suppose to do is to invest your savings in a particular stock once in a month instead of putting it into mutual fund. Next month, same amount would be invested in another stock which at that point of time gives you good medium to long term investment opportunity. This could be an ideal choice for salaried employees as well as businessmen / entrepreneurs, as it will help you to directly invest in fundamentally strong small and mid cap companies to build a diversified portfolio of high quality small and mid cap stocks over a period of time to achieve wealth creation.

Investing in stocks is a great way to build your diversified investment portfolio. It is a simple and time tested approach for accumulation of wealth in a disciplined manner. Simply get some savings from your monthly income and invest in equities for the long term. It not only allows you to save every month in a disciplined way but also helps you ride through ups and downs of the stock market.

Invest some portion of your monthly income in good companies without  timing the stock market and you will definitely get rewarded in the long run. Just take care of Basic Principle of Investing in Equities:

1. Invest in the stock market with a long term view (3 - 7 years or more).
2. Invest in companies which are fundamentally strong with scalable business.
3. Follow a disciplined approach by Investing regularly in equities.
4. Build a diversified portfolio by investing in small & mid cap companies.
5. Avoid frequent buying / selling of stocks, It's trading not Investing!
6. Review performance of your holding companies at least once a year to decide whether to buy / sell or hold.

Hidden Gems Stocks - Average Returns of 126.4% in 3 Years

Hidden Gems continue to shine giving higher returns compared to all major indices. As on date, average returns of the last 26 Hidden Gems stocks released over the last 3 years is 126.4%. Below is the performance update of Hidden Gems stocks released over the last 3 years.
13 Hidden Gems stocks i.e. Lincoln Pharma, Pix Transmission, GEE, Ador Fontech, Uni Abex Alloy Products, Bhagyanagar India, Cupid, Som Distilleries, Patels Airtemp, Dynamic Cables, Indag Rubber, Pakka and V2 Retail turned multibagger delivering returns in the range of 90% to 730%.

Time has shown that smart investors have made their fortune by investing in equities in the long term. None other asset class can match giving you such extraordinary returns. Yes, it's important for you to invest in the right set of companies at the right price.

Multibagger Stocks which can multiply Investments in Future

The number of small-cap stocks is large and finding a quality stock that can give high returns over a long period is tough even for equity analysts. One reason is that such stocks usually have a short history and are not tracked by many analysts and brokerage houses. Then there are risks such as low liquidity, governance concerns and competition from larger players.

Scores of once small companies have over the years grown big, giving investors a 30-50 percent annual return over 10-15 years and creating fortunes for investors. However, more often than not, we find ourselves at the wrong side of the fence and regret our inability to spot such stocks on time.

Benefits of Investing in Small Caps

1. Huge growth potential: The first and the most important advantage that a small cap stock gives you is their high growth potential. Since these are small companies they have great scope to rise as opposed to already large companies.

2. Low Valuations: Usually small cap stocks are available at lower valuations compared to mid & large caps. Hence, if you invest in good small cap companies at initial stage and wait for couple of years,  you will see price appreciation not only because of growth in top line and bottom line but also due to rerating which happens with increase in market capital of the company.

3. Early Entrance Advantage: Most of the fund house and institutions do not own small caps with low market cap due to less liquidity which make it difficult for them to own sufficient no. of shares. This gives retail investors an opportunity to be an early entrant to accumulate such companies shares. When company grows in market cap by delivering consistent growth and becomes more liquid, entry of fund houses and institutions push the share prices up with re-rating of stock giving maximum gains to early entrants.

4. Under–Researched: Small cap stocks are often given the least attention by the analysts who are more interested in the large companies. Hence, they are often under - recognized and could be under-priced thus giving the investor the opportunity to benefit from these low prices.

5. Emerging Sectors: In a developing economy where there are several new business models and sectors emerging, the opportunity to pick new leaders can be hugely beneficial. Also the disruptive models in the new age is leading to more churn and faster growth amongst the nimble footed smaller companies.

1. Go for companies with low debt ratio (preferably less than one)

2. A high interest coverage ratio (above 3x) and a high return on equity are big advantages

3. Avoid companies with huge liabilities in the form of foreign currency convertible bonds / external commercial borrowings

4. Look at the quality of the management, its governance standards and how investor-friendly the company is.

5. Mid-cap and small-cap companies can be future market leaders, so be patient with your investments

Those who wish to invest in small-cap stocks should do so only if they have a long investment horizon and tolerance for volatility. Small-cap stocks suffer the steepest falls in a bear market and rise the most in a bull market. An investor should stay invested for at least three-five years to allow their portfolio to gain from at least one bull run. If you are looking for multibaggers, stock must have high growth rates along with expanding PE ratios. The price we pay for the stock is important as it will determine whether there is enough scope left for a PE expansion to take place.

Concerns while Investing in Small Caps

1. Risk: The first and the most important disadvantage a small cap stock is the high level of risk it exposes an investor to. If a small cap company has the potential to rise quickly, it even has the potential to fall. Owing to its small size, it may not be able to sustain itself thereby leading the investor into great loses. After all, the bigger the company, the harder it is for it to fall.

2. Volatility: Small cap stocks are also more volatile as compared to large cap stocks. This is mainly because they have limited reserves against hard times. Also, it in the event of an economic crisis or any change in the company administration could lead to investors dis-investing thereby leading to a fall in prices.

3. Liquidity: Since investing in small cap stocks is mainly a decision depending upon one’s ability to undertake risk, a small cap stock can often become illiquid. Hence, one should not depend upon them for an important life goal.

4. Lack of information: As opposed to a large cap company, the analysts do not spend enough time studying the small cap companies. Hence, there isn’t enough information available to the investor so that he can study the company and decide about it future prospects.

If these factors scare you but you still want to gain from the upside potential of such stocks, Saral Gyan Nano ChampsHidden Gems & Value Picks  is a great choice for you. At Saral Gyan, team of equity analysts keep on evaluating micro, small and mid cap stocks to explore the best Nano Champs and Hidden Gems of stock market. Saral Gyan - Nano Champs, Hidden Gems and Value Picks are the micro, small and mid cap stocks with high probability to become multi-bagger stocks in future and a path for our investors to create wealth through equity investments in a long run. Multibaggers evolve over time, many successful investors follow plenty of processes to identify these stocks early and continue to ride them till they evolve as multibaggers.

Grow your Wealth by Investing in Potential Multibagger Small Caps

The stocks we reveal through Nano ChampsHidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Moreover, under our Wealth-Builder service, we encourage our members to replicate our Wealth-Builder portfolio by investing in selective high quality small and mid cap companies. We believe, investing in Wealth-Builder portfolio with regular portfolio review from our end can help you achieve market beating, very good returns over a longer team and help you take care of yourself and your family needs, which ultimately lead to a healthy and wealthy life after retirement.

Do write to us in case of any queries, we will be delighted to assist you.

Wishing you Happy & Safe Investing!

Regards,
Team - Saral Gyan.

# Portfolio of 10 Mid & Small Caps for FY 2024-25 is Released!

Greetings from Team - Saral Gyan!

We are pleased to inform you that we have released our Portfolio of 10 Mid and Small caps for FY 2024-25 on 31st March 2024 and shared it with all our active members of Hidden Gems, Value Picks and Wealth-Builder. We are confident that these carefully selected stocks can outperform major indices like Sensex and Nifty over the next 12 months.

If you wish to receive our Portfolio of 10 Mid and Small Caps for FY 2024-25, you can opt for an annual subscription of Hidden Gems, Value Picks, Wealth-Builder or any of the combo packs. We will ensure to activate your subscription ASAP and share the recently released Saral Gyan Portfolio of 10 Stocks for FY 2024-25 on your registered email Id.

Performance update of Saral Gyan Portfolio of 10 Small & Mid Caps for FY 2023-24

We are glad to share the performance update of Saral Gyan Portfolio of 10 stocks of FY 2023-24 released by us last year on 4th April 2023. Our portfolio has outperformed Sensex by 101.3%, Sensex has given returns of 24.5% (59,106 on 4th April '23 to 73,561 as on date) since beginning of current financial year where as Saral Gyan Portfolio of 10 stocks of FY 2023-24 have delivered absolute returns of 125.8% in the same period.

Eight stocks out of ten of our FY 2023-24 portfolio are giving positive returns in the range of 1% to 852% and two stocks have given negative returns of -2% and -15%.

The maximum returns of 852% were delivered by our Hidden Gem stock Cupid while our Value Picks stocks like Natco Pharma, Hindustan Copper, Care Ratings have delivered returns in the range of 60% to 170% over the last 12 months. Apex Frozen Foods and Superhouse underperformed the major indices delivering negative returns of -2% and -17% respectively.

Note: We have reviewed these stocks and guided our members with buy / sell / hold updates in our Portfolio of 10 Stocks for FY 2024-25 (released on 31st March 2024).

We continue to follow our simple but effective approach by evaluating each stock on the basis of below mentioned criteria’s.

(i) Top Quality management with high integrity:

This is an absolutely non-negotiable condition. If the management is not honest, will they want to share the goodies with you? No, they will look for the first opportunity to siphon off the profits and pull the wool over your eyes.

(ii) The scale of opportunity must be big:

Multi-bagger stocks are created because they are able to scale the opportunity rapidly. Titan Industries is a great example. In 2003-04, Titan‘s market cap was 500 crores. As on date, it is around ~3,00,000 crores. The fact that India is a booming marketplace of 140 crores consumers means that most products and services have a head start at trying to scale up their activities.

(iii) Low debt; free cash flows:

We learnt from the great crisis of 2011 and 2019 that companies with high debt on their books simply get slaughtered. While debt per se is not bad (if the company is able to borrow at a lower rate and deploy it in its business at a higher rate, the operating leverage works in its favour), excessive debt with high interest and repayment obligations can crunch the stock in times of downturn. So, as a long-term investment philosophy, it is best to steer clear of high-debt companies.

(iv) High ROE – Efficient users of capital:

Some company’s management is able to squeeze that little extra of every buck. Rising ROE or ROE above 15% is necessary to make into the hallowed list of model portfolio.

(v) No High Capex Requirements – No Serial Diluters of Equity:

We know the demerits of investing in stocks like Suzlon & GMR which have an insatiable appetite for more and more capital. To feed their perennial hunger, these companies dilute their equity by making FPOs, GDRs & FCCBs resulting in total destruction of shareholders’ wealth. Companies should be lean and mean requiring minimal capital but generating huge returns there from.

(vi) Reasonable growth expectations:

“If you get a return of 20% for your portfolio, you must be very happy”. So, stop craving for that overnight multi-bagger. You’ll only end up losing your precious capital that way. Instead, look for well established small and mid cap companies that are growing at a reasonable rate of return (15 – 25%). With time and the magic of compounding, you will have your multi-bagger in your portfolio.

(vii) Valuations:

Most investors are obsessed about valuations, refusing to buy any stock that is “expensive”. However, one must remember that “expensive” is a relative term. If a stock is compounding at 25% on an annual basis, paying a price of 30 times earnings may be very reasonable. A stock like Nestle, for instance, has always been “expensive”. However, if an investor had gone ahead and bought the stock, he would have had an incredible multi-bagger on his hands. On the other hand, in trying to buy a “cheap” stock, one may get saddled with unsavory companies. After all, there is a reason why such stocks are “cheap”.

Of course, one should be careful not to buy in euphoric or bubble times when the pricing may be extravagant and not at all reasonable.

(viii) Concentrated Portfolio:

We like Warren Buffett approach, a believer in the concept of a concentrated portfolio. If you believe in the prospects of a stock you should be prepared to put a substantial chunk of money in it – or nothing at all. There is no point in buying a bit of this and a bit of that because that dilutes your returns.

Of course, we are no match for Warren Buffett and we do not have his conviction levels. So, we’ll stick to 10 stocks to begin with, which means that from 5% to 12% of the wealth will be invested in each stock.

(ix) Diversification:

Last but not the least; a proper portfolio must be diversified across sectors. A bit of Finance, a bit of consumption, some autos, some pharmaceuticals, a pinch of chemical etc will make a balanced portfolio.

Saral Gyan Portfolio of 10 Small and Mid Caps for FY 2024-25 has been emailed to all our Hidden GemsValue Picks and Wealth-Builder members on 31st March 2024. Portfolio stocks holding period is minimum of one year. If you wish to receive our Portfolio for FY 2024-25 of 10 Small & Mid Caps, you can opt for any of service - Hidden Gems, Value Picks, Wealth-Builder or any of the combo packs.

Do write to us in case of any queries, we will be delighted to assist you.

Wishing you Happy & Safe Investing!

Regards,
Team - Saral Gyan.