Jindal Cotex Limited (NSEI:JINDCOT), a INR₹425.28M small-cap, is a consumer discretionary company operating in an industry, whose sales are driven primarily by consumer sentiment, which is closely linked to employment and wages. Access to capital is also important, so interest rates and lending standards influence the rate at which consumers purchase luxury goods. The industry also faces a very competitive environment, with further pressure on margins from changes customer preferences, including the continued rise in online sales. Consumer discretionary analysts are forecasting for the entire industry, a relatively muted growth of 8.28% in the upcoming year . Is now the right time to pick up some shares in luxury goods companies? In this article, I’ll take you through the sector growth expectations, and also determine whether Jindal Cotex is a laggard or leader relative to its consumer discretionary sector peers. Check out our latest analysis for Jindal Cotex
What’s the catalyst for Jindal Cotex’s sector growth?
E-commerce continues to be the fastest growing sales platform for consumer discretionary goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. In the past year, the industry delivered growth of 3.81%, though still underperforming the wider Indian stock market. Jindal Cotex lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Jindal Cotex may be trading cheaper than its peers.
Is Jindal Cotex and the sector relatively cheap?
Luxury goods companies are typically trading at a PE of 13x, below the broader Indian stock market PE of 29x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry did returned a lower 6.98% compared to the market’s 9.80%, which may explain the lower relative valuation. Since Jindal Cotex’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Jindal Cotex’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Jindal Cotex recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Jindal Cotex as part of your portfolio. However, if you’re relatively concentrated in luxury goods, you may want to value Jindal Cotex based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Jindal Cotex has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the luxury goods industry. However, before you make a decision on the stock, I suggest you look at Jindal Cotex’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into Jindal Cotex’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other consumer discretionary stocks instead? Use our free playform to see my list of over 100 other consumer discretionary companies trading on the market.