"NK Stalk Talk: - Strategic Stock Selection Guide for Long-Term Wealth
Creation"
In the realm of stock market discussions, let's delve into the method of
identifying promising stocks for long-term investment, drawing inspiration
from the concept of NK Stalk Talk (Strategy developed by Shri. Nitish
Kumar).
Mr. Market advises newcomers to approach stock selection with the precision of
Arjuna, aiming for the eye of the fish.
The strategy involves focusing on wealth creation through careful consideration
of micro-cap or SME stocks, allowing them to evolve into small or mid-cap
entities.
Key Guidelines:
Business Focus: Choose companies with small market capitalization but
substantial business potential for future growth.
Website Verification: Ensure the authenticity of a company by visiting its
official website; steer clear of stocks associated with fake websites.
Profit Booking: Upon doubling, consider booking 50% of the stock while holding
onto the remaining quantity.
Learning and Application: Emphasize continuous learning and apply acquired
knowledge in stock selection and execution.
Portfolio Management: Avoid overloading your portfolio; focus on a selective
number of stocks.
Exit Strategy: Notably, exit decisions for big investors are often based on
reaching a specific market capitalization rather than the stock price itself.
Conditions Indicative of Multibagger Potential:
Big Orders: Significant orders and a subsequent increase in sales and profits
can mark the beginning of a potential multibagger stock.
Consistent Growth: Stocks exhibiting consistent growth in earnings per share
(EPS) over the past few years are considered favorable.
Ratios for Analysis:
EPS (Earning per Share):
Negative EPS indicates a loss-making company.
Consistent year-on-year growth is a positive indicator.
ROE (Return on Equity):
Preferably above 13, when compared with peers.
High ROE coupled with high debt raises a red flag.
Growing profits should be accompanied by a reduction in debt.
P/E Ratio (Profit/Earning):
A lower P/E ratio is generally favorable.
Consider peer group P/E ratios and factor in sector-wise variations.
D/E (Debt to Equity Ratio):
Ideally less than 1, with 0.5 being particularly favorable.
D/E can reveal potential issues in the business model structure.
Cash Flow:
Positive and growing cash flow on a quarterly basis is a positive sign of business
stability.
ROCE (Return on Capital Employed):
A value greater than 13 is desirable.
Ensure that the difference between ROCE and ROE is not significant.
Shareholding Pattern:
Promoter holding should ideally be above 50%, with 75% considered excellent.
Excessive public holding can be a red flag.
Example Analysis: Taking Vadilal stock as an example:
Market Cap: ₹1691 Cr
P/E: 13.2 (>13)
EPS: 179 (positive)
ROE: 28.4%, ROCE: 25.6%
Debt: ₹185 Cr, D/E: 0.1
Promoter holding: 64%
This comprehensive guide encourages new investors to approach stock selection
with prudence, focusing on companies with growth potential and sound financial
indicators for sustained long-term wealth creation