This has happened with me recently, again. This time, the price of catching the ship was much higher.
I have been researching into and wanting to invest in Chemcrux. I had created a screener to find microcap stocks and look for favorable business conditions like growing earnings, improving return ratios, undervaluation etc. Among the 50-60 stocks which passed this filter, only 1 seemed reasonable enough to invest in: Chemcrux. stock price: Rs 132 (P/E of 7).
What makes investment in chemcrux difficult is that it is a BSE SME company. Meaning that minimum lot size is 2000 shares. The minimum amount I could invest would be Rs 2,60,000. This would make it my largest holding by far. There is no way I can average up (or down) anytime before one more year because I do not trust my investment skills enough to invest more than a certain percentage of my net worth directly into stocks.
I generally work a 10pm-6pm job and hence cannot do much investing research in the week. Most of it happens on weekends. I read through chemcrux valuepickr threads, last 4 years AR, company website, did a bunch of independent research on their products. By the time i Build conviction about investing into Chemcrux and check the stock price again, it is 181 rupees. Minimum investment amount is Rs 3,60,000 rupees. Most observers might conclude that the ship has sailed. But my investment thesis into chemcrux was not hanging by a thread and dependent upon me entering it at 130 rupees dot. As per my calculations and as per my investment thesis and taking into account the capex already done for capacity expansion, revenues and profits would grow 3x and 4x respectively over next 3-5 years. When the company becomes larger and migrates to the mainboard of BSE, then it would be able to get a fairer valuation of say 15-20 PE (many specialty chemical makers even get a P/E of 30). I would not leave a 7x-8x market cap opportunity because the stock price increased 37%! Yes my future expected profits (basis for investment thesis) might reduce from 6x to 4x but imo this is not a good reason for not making an investment. If you like the company, if you like the management, if you like the industry, if you like the valuation then you enter the stock. yes, relatively speaking, a P/E of 9 is higher than 7, but i believe both are much lower than the company deserves.
As always, only time will tell whether my reasoning is sound, or delusional. I’ll either make decent money, or ill gather vast amounts of experience on how not to think. Either way, I’m not complaining.