When we purchase a company's shares, we get to own our own small stake in the said company. Of course the reason for our buying into that company is due to the fact that we believe in its line of business and carry a hope that in the coming days the company will grow and so will our share in it. But will you buy into a company with no or negligible revenues, operating profit and assets? And if you are one of those who bets on the future prospects, then again the question that arises is how much amount will you pay under justifiable limits for that opportunity?
More than what meets the eye
- These companies have negligible revenue, operating profit and assets but despite that have high valuations.
- Valuations are so high that betting on even the future growth doesn’t seem logical
- Intra-trading among the punters cannot be denied
We have extracted a list of companies that don't have much revenue, operating profits or assets but are still quoting a price that is faraway from rational valuations. What's more, they all have a market capitalisation of more than ₹1,000 crore. The valuations in terms of price to earnings or price to book is so high that paying for even the future growth doesn't seem to be logical. In any case it will be advisable to stay clear of these stocks. Not only are the prices abnormally high, most of these stocks are characterised by a very low number of shareholders. This also raises the possibility of intra-trading among punters only to artificially inflate prices. Their rising stock price lures individual investors who are later left stranded due to that very high price and with no buyer in sight.
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