Re: Stock Returns Calculation over a period - (Example Opto)

Investing Strategies
1

Donald and I had a discussion about the returns that Opto had given over the last few years. Based on our discussion, I went and did some digging up. Here is what I found:-

The cumulative returns of Opto over the last few years from www.smartinvestor.in (Business Standard’s website - http://www.smartinvestor.in/company/comp_21300-Opto_Circuits_India__Ltd.htm ).

If you click on Sensex on the chart it shows you the comparative returns of the stock w.r.t. the index. Opto’s data is as follows:-

From 8/7/2004 - 11/7/2011 - Opto: 5,600% Sensex:287%
last 5 yrs - Opto:306% Sensex: 73%
last 2 yrs - Opto:107% Sensex: 39%
last 1 yr - Opto:11% Sensex: 4%

I then looked at the BSE historical prices for the last 10 years. Bonus shares were announced every year from 2004 to 2008 and twice in 2003. Someone with only 100 shares at about 40 each on or just before 14/1/03, would be having about 1305 shares now. So, a 4000 Rs (100 x Rs 40 per share) investment would be now about 3.65 lakhs (Rs 280 x 1305) - a flat gain of about 90.35 times (9035%).

However, when I look at the normal chart, there is no way of understanding this huge return as prices have rarely moved above the 350 mark in the last 10 years (except a brief period when it had gone around the 640 mark in 2006 and subsequently fell after a 1:1 bonus issue).

**My question is:
**

  • Aren’t the charts created in a manner that adjusts the prices based on bonus/split?
  • Are the returns data getting displayed by geodesic (the common flash based charts that are found everywhere these days - moneycontrol, smartinvestor etc) showing the correct data?
    If someone can clarify based on Opto’s example, it would be really helpful and instructive for me.
2

hi

I have got metastock software wherein you can manually adjust all the splits/bonuses and hence will get the true picture of the returns. Only drawback is that rights adjustments is difficult.

e.g on 31/03/2003 the adjusted price for opto (for all subsequent bonuses and splits) was Rs 2.55. Compare that to the current market price of 280 odd and you can get the returns. It amounts to more than 100 times in these 8 years and still people go gaga over the high fliers like titan and hawkins.

3

Thanks Hitesh…this confirms that atleast the geodesic returns are more or less correct. Yes, I agree with you, Opto has been a fantastic stock over the last decade. The million dollar question (or should I say, ek crore ka sawal) is will it be able to repeat the performance in the next ten years!

4

People were gaga over Opto in the last bull run… comparitively it seems to be taking a breather now but looking at the past performance and pedigree of the management, this ones time will come again :slight_smile:

5

In answer to your one crore ka sawal, lets hope mayur replicates opto in next few years. Once it comes in the radar of fiis/mf, the PE rerating could be very swift.

100 times returns is truly mindboggling. Only 1 lac invested in the stock turns out to be 1 crore. wow.

6

Can we get the numbers fro Orient Abrasives? I am not sure i am doing it correct but back of envelope calculation says it went up 130 times btw 2003 & now.

7

The original question is over Capital Allocation decision. and hence the question on stock returns - and calculations shown by Geodesic - if the data is faulty, we can be led to taking wrong decisions!

Abhishek - Please also throw up 3yr, and 4yr retruns as shown by Geodesic, in addition to 1,2 and 5yr returns shown.

I have benefited form Opto 4-5x only as I entered only in late 2008. I have not got any bonus or splits in between.

Much as I like Opto, for the purposes offurther capital allocationI am unimpressed by the historical data of a decade long -whether 20x or 100x:))

The way I am coming to see this issue - from the recent 3-4 year data - My returns are 4-5x only because I entered at the rock bottom in 2008-09. So that 3-5x return was there for any stock with a good pedigree -everything was so battered down, then.

Opto has done nothing special for anyone in the last 3 years! And for those who did not get in at the rock bottom and say entered later in the day once the stock had corrected back, the returns are barely 5-10%. Anyone who had entered before the crash say August 2008 again has only 5-10% returns to show in the last 3 years.

So what are we talking about? This does not seem to be a business growth led compounding story anymore?

Disc: I haven’t taken this forward - havent done due diligence with checking the data properly- and continue to hold my Opto allocation for the moment.

But my hunch is the stock is well-discovered now. All the expectation of growth is always built into its price. Frequent dilutions have not helped. For it to be a compounding story for the next 5 years - much hinges on hope of USFDA for DIOR -that hope may take much longer in realisation. meanwhile I am losing out on better compounding stories all around.

From the most recent history, form the charts it is no more making higher peaks every time. The same peak of 300-350 gets achieved with several troughs in between.

I’ll come back with exact data, but I have a hunch the stock hasn’t given me even a 10-15% compounding in last 2 years -once the stock had corrected from the lows -by as much as 3x in 5 months from Mar 2009.

So opportunity cost wise, this has probably been a dud for me. What makes me think it will not continue to be a dud for the next 2 years?

-Donald

8

Opto 5yr chart at MoneyControl (Geodesic)

http://www.moneycontrol.com/stock-charts/optocircuitsindia/charts/OCI01

I did some validation with historical price data and the adjusted price data shown in Geodesic charts. Following tells me that the charts are showing correctly adjusted prices.

Date

Bonus

New

Existing

25-Oct-07

1

2

4-Nov-08

7

10

Checking for Bonus adj prices or not on Geodesic Chart

Date

Geo Close

Yfin Close

AdjClose

16-Jul-07

166.18

423.8

166.2

Adjusted for the 2 bonuses, Geo price shown is correct

13-Aug-08

210.24

357.4

210.24

Adjusted for this bonus, Geo price shown is correct

This means Geodesic charts are adjusted for bonus & splits. I had got in in Opto circuits at 75-80 in Mar 2009. In 6 months to Sep 2009 it had reached 185. from Sep 2009 to Sep 2011 where it trades at 266, Opto has given only a 13% CAGR over 2 years!!
9

Siddharth,

My data in the charts show an adjusted price of orient abrasives as on March 2003 at 0.96 Rs. That amounts to 32 times at cmp of 32.

However in June 2001, the price was 18 paisa. Based on this the returns come to just around 160 times if cmp is close to 32 or so.

For that matter I feel a lot of stocks would give similar kind of returns of 100 times if one were to dig some more mainly because that is precisely where the seeds of the current bull market were sown, somewhere in 2002-03.

10

Hitesh, you are right. Most stocks started their bull run in the 2002-03 time frame. And although I don’t understand macro economics very well, I dare say that the next bull phase seed is getting planted now. If you look at the most indicators - high interest rates, high inflation, retail (& institutional) investor apathy and neglect - then we may be in a good phase to accumulate stocks. Again, the question is which stocks to accumulate. Next 5-7 years will make a lot of difference to the overall portfolio returns that we can make.

Views invited…

11

Hi Abhishek- Agree with your hypothesis. In my opinion, it may take a painfully long time to the reap the benefits of next bull market. I picked up Opto after reading the value picker story and as Donald said it is behaving like dud for me too.

12

Hi Binu,

A 15-20% CAGR over 3 years may not be that bad, but compared to the returns we have made in many other stocks during the same period, this pales in comparison.

I forgot to mention in the last post on Opto Charts that I have completely exited the stock - Reason - Opportunity Costs!

-Donald