Long-term investors focus on a company's fundamentals. Good fundamentals translate into earnings. Sound earnings take the stock upwards, thus generating capital gains for investors. A part of earnings also gets paid back to investors through dividends.
If a company does not have meaningful earnings currently, fundamental analysts try to figure out if the future could be promising. A company which has bright prospects, no matter if its current state is not as much good, can command quite some premium in the market. However, the premium for such a company should be within rational limits.
This story brings to you the companies which have negligible revenues and operating profits but still have high market valuations in terms of the price-to-earnings multiple or the price-to-book ratio. These companies aren't asset plays either; they have meagre assets on their books. Moreover, the average combined six-month volumes of these companies on the NSE and the BSE are also very discouraging.
Investors are better off staying away from these companies.
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