The current article in this series provides responses related to:
- Queries about Virinchi Limited
Virinchi Ltd is small cap company with ₹130 crore market cap, it has been growing over 30% for the past 5 years and available at a low PE ratio of 7. It is a software company, but now they have started a 500 bed hospital (3-4 months back) with investment around 500 crore in Hyderabad, numbers from the hospital business will be reflected in the quarterly results? If yes, isn’t the stock available cheap?
Thanks for writing to me!
Assessment of the competitive advantage of an IT company is difficult in the light of ever changing technological environment in which such businesses operate. Sustainability of the past growth in future, would determine whether the stock is available cheap or it is justified at current valuations. The investor should understand further the kind of products/services the company provides, its competitors etc. to make an opinion about the future sustainability of the demand of its products/services.
Regarding start of the hospital, it remains to be seen whether the management is able to successfully execute and run the hospital profitably. There have been many instances where hospitals have not been able to run profitably and have proved to be a drain on the wealth of shareholders. Therefore, assigning any value to the future earnings of hospital should be done with a pinch of salt and it is advised to wait and see the execution ability of the management before arriving at any view about the under/fair/over valuation of the company’s stock price.
You may take guidance from the following article for learning more about the companies, which operate in industries that are new to you:
Hope it clarifies your queries!
All the best for your investing journey!
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- The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
- I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
- Currently, I do not own stocks of the companies mentioned above in my portfolio.