Poor Avenue Supermarts (DMart) Q3 numbers.
In two months, stock was up from 1150 to 1650 in anticipation of good results and other news related euphoria like the new e-commerce policy that restricts foreign e-tailers. But now with just 2% PAT growth valuations seem unreasonable. I previously wrote how the stock was overpriced at IPO.
Even the salvaging 33% growth in topline is not sustainable. Discount stores can’t keep mushrooming at historical rates and same-store sales cannot grow indefinitely by giving deep discounts and squeezing suppliers.
So if not for growth or earnings, what are shareholders paying a forward PE of 78 for? Peter Lynch said he judges retailers by same-store growth and inventory turns.
Share holders should keep an eye out for trouble in DMart – especially piling of inventories and rising working capital that may signal that growing sales by discounting is not working well enough to catch up with valuations.
Stock has broken below 20-day SMA, center line of the Bollinger Band, which suggests the short term uptrend since November may be coming to an end. It will break under RSI center line on Monday, 14-January, beginning a down trend.