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At Value Research Stock Advisor, our recommendations go through a rigorous stock selection process. We do not recommend a stock just because it is in momentum or is a market favourite or promises to deliver a huge payoff at some unknown time. This real-life analysis below will give you a sneak peek into why we take the time to check and double-check every recommendation.
Enter CMS Info Systems - the market leader in the cash management industry
Did you know that cash in circulation in the country has jumped 77 per cent since demonetisation?
Who makes money?
There are specialised companies that manage, handle, transfer and maintain ATMs. These companies are called cash management companies. CMS Info Systems is the giant here.
Three reasons why you will like CMS Info Systems
- Market leader: It's the market leader in ATM cash management with a 46 per cent market share.
- Excellent economics: It has a net cash balance sheet, high operating margins, positive cash from operations, high return on equity and capital, negative working capital cycle, and a long runway for growth.
- Super opportunities: It has significant market opportunities. The three segments in which the company operates, cash management, ATM managed services, and remote monitoring technologies, are expected to increase by 2.9 times, 2.5 times and 3.7 times between FY2021-FY2027.
One more: Earnings drivers on its side
Every multibagger needs high earnings to drive its stock price up. CMS aims to double revenue to Rs 2,500-2,700 crore by FY2025 over FY2021 base, translating into a CAGR of 18 per cent.
Here are three earnings drivers on its side:
1) Large public sector bank contracts,
2) RBI's stricter compliance standards, and
3) Formalisation of the Indian economy.
The cherry on the cake
CMS, as seen above, has a dominant position in cash management, super economics and multiple opportunities.
Here's the cherry on the cake: It trades at just 16 times its trailing 12-month earnings.
But here's why we rejected CMS Info Systems and advise you not to buy
CMS' promoter, Sion Investment Holdings, has pledged its entire promoter holding as security against a foreign loan.
No margin of safety
The 100 per cent pledge of promoter holding is a strict STOP for us. It's a non-negotiable that no company is allowed to breach. At Value Research Stock Advisor, we first look at the risks of investing in any stock. Returns follow only when the stakes are minimal. This real-life example, among many others, forces us to drop apparently attractive companies.
Here' the lesson you should take
Always look for what can go wrong. An apparently attractive stock with excellent numbers and cheap valuations may hide skeletons not visible. CMS Info Systems does not have any pledge on its books. Its promoters do.
Account for these risks, and you should do well.
Or just leave it to us
If it is too cumbersome or you don't have the time, follow our recommendations. We have 31 questions that cover potential red flags for any company. Check out our risk score for every recommendation.
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Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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