Nandani Creation Limited (NSEI:NANDANI), a INR₹194.67M 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 sector is also undergoing significant structural shifts resulting from changes in consumer preference, as well as the continued rise in online competition. Consumer discretionary analysts are forecasting for the entire industry, a relatively muted growth of 8.28% in the upcoming year . Should your portfolio be overweight in the luxury goods sector at the moment? In this article, I’ll take you through the sector growth expectations, and also determine whether Nandani Creation is a laggard or leader relative to its consumer discretionary sector peers. See our latest analysis for Nandani Creation
What’s the catalyst for Nandani Creation’s sector growth?
E-retailing is expected to remain the fastest growing sales channel, shifting the retail landscape. Significant number of retail store closures and bankruptcies were an indication of both changing consumer preferences and rising online competition. In the past year, the industry delivered growth of 3.81%, though still underperforming the wider Indian stock market. Nandani Creation leads the pack with its impressive earnings growth of over 100% last year. This proven growth may make Nandani Creation a more expensive stock relative to its peers.
Is Nandani Creation and the sector relatively cheap?
Luxury goods companies are typically trading at a PE of 13x, lower than the rest of the Indian stock market PE of 26x. 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 9.83%, which may explain the lower relative valuation. On the stock-level, Nandani Creation is trading at a PE ratio of 8x, which is relatively in-line with the average luxury goods stock. In terms of returns, Nandani Creation generated 124.93% in the past year, which is 117.95% over the luxury goods sector.
What this means for you:
Are you a shareholder? Nandani Creation recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders, and the stock is currently trading in-line with its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Nandani Creation as part of your portfolio. However, if you’re relatively concentrated in luxury goods, you may want to value Nandani Creation based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Nandani Creation has been on your watchlist for a while, now may be the time to enter into the stock. If you like its proven ability to generate growth, you’ll be paying a fair value for the company, given that it is trading relatively in-line with its peers. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. Before you make a decision on the stock, I suggest you take a look at other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into Nandani Creation’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.