5 popular stocks with no growth to show

Sometimes, the market forgets its own rules. Stocks with barely any earnings momentum, weak capital returns and no visible growth runway are rewarded with valuations that should belong to high-flying disruptors. This isn’t just a mismatch, it’s a flashing red flag. And our market is filled with many such examples.

We sought to look for a few with the following filters:

• Companies trading at P/E multiples north of 70
• Profit after tax growth below 10 per cent during each of the last five years (FY19-24)
• Average ROE and ROCE below 10 per cent for last five years

 The result? We found five potential traps—stocks priced for perfection without the performance to back it. See table 

Two familiar names stood out: Kokuyo Camlin, a nostalgic favourite in school stationery, and Reliance Industrial Infrastructure, a passive cog in India’s largest conglomerate. Their analysis below reveals why you should look past the brand and focus on the balance sheet.

Kokuyo Camlin

What’s weighing down profits

The company behind the iconic stationery brand Camlin evokes nostalgia for generations of Indian students. But the sentimental pull masks its sluggish fundamentals. From FY19 to FY22, earnings barely moved and even fell at times due to two core issues. First, the Covid pandemic hit school and office supply demand hard. Second, even in normal years, Camlin’s low-margin, commoditised product lines—like pencils, inks and sketch pens—struggled with volatile input costs and zero pricing power.

The margin trap

In a price-sensitive market, Camlin can’t easily pass on raw material inflation. When plastic, ink, or paper costs rise, it absorbs the hit. When costs fall, competitors slash prices. Either way, its net profit margins remain wafer-thin (in a range of 0.2-3 per cent). Any topline growth simply evaporates before it reaches the bottom line.

Poor capital efficiency

Camlin’s ROE and ROCE have hovered in single digits over the last five years, sometimes dipping below 5 per cent. Despite its strong brand recall, the company’s asset-heavy manufacturing and distribution footprint yields little in return. The model is capital-intensive but doesn't generate efficiency given volatile input costs and no room for price hikes.

The valuation puzzle

Why does this underwhelming business trade at over 80x earnings? The reasons include brand nostalgia, low float and a sharp earnings dip in FY24 that mechanically inflated the P/E. But there's little in the numbers to justify investor optimism. Unless Camlin significantly lifts margins and ROE, the stock looks dangerously overvalued.

Reliance Industrial Infrastructure (RIIL): Riding on name, not numbers

What’s weighing down profits

No growth. No scale. No story. RIIL exists to serve its parent, Reliance Industries, mainly through leasing, construction, and pipeline services. Over FY19-24, revenue shrank 9 per cent per annum and profits stagnated in the Rs 8-17 crore range due to its narrow, single-client business. The company essentially had no client diversification, no expansion strategy and no growth visibility.

Underpowered operations

Most of RIIL’s earnings come from interest and investment income, not core business. With zero debt and idle cash on its books, there’s no leverage to enhance returns. Its infrastructure assets are ageing and underutilised, yet the company shows no sign of reinvestment or repurposing.

Returns that miss the mark

With a massive capital base and negligible profits, the company’s ROE and ROCE hover around just 2-3 per cent, meaning RIIL fails to even cover its cost of capital. Capital is preserved, not grown. The business remains operationally stagnant, lacking both strategic direction and financial momentum.

So why the triple-digit P/E?

The stock trades at over 100x earnings not because of its current performance, but because of what investors hope it might become. They seem to have assigned value to its asset base and affiliation with Reliance Industries. Further, speculation around a potential merger, asset monetisation or corporate restructuring fuels the price. But until those moves materialise, the valuation stands on shallow optimism.

Remember

Both Kokuyo Camlin and RIIL show how market narratives can override underlying numbers. However, such optimism does not last long. High valuations need fuel in the form of earnings growth and strong return ratios. When neither exists, you’re left with a ticking time bomb of investor expectations.

In your hunt for wealth creators, don’t be swayed by familiarity or future promises. Look for businesses that turn capital into consistent profits. That search may end with Value Research Stock Advisor. Our service provides carefully vetted stock recommendations, along with ready-to-invest portfolios, updated every month to help you make informed and confident investment choices. Explore it now!

Also read: 5 top-rated stocks at appealing valuations!