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When the fundamentals tell a different story

We look at companies whose share prices don't match their financial growth

When the fundamentals tell a different story

dhanak हिंदी में भी पढ़ें read-in-hindi

Here's how we want the market to function. A business performs well consistently. It is fundamentally strong. People take notice and want to purchase it. This creates demand, and thus, the stock price goes up.

Well, that's how we want it to function. But does it?

Markets, at the end of the day, are run by people. And people, indeed, are emotional beings. It is easy to make people believe in something if you paint a narrative strong enough. And this goes for stocks too.

So, since the birth of markets as we know them, hype, overoptimistic projections of earnings, and, at times, just plain stupidity have driven stock prices, tossing fundamentals and performance out of the window.

So to find present examples of such companies where the fundamentals don't match the stock price, we conducted a simple exercise. We looked for companies with poor to below-average financial growth but stellar stock market performance over the last five years.

For the above, we went to our stock screener and applied the following filters:

  • Market cap of more than Rs 1,000 crore
  • 5Y average ROE of less than 10 per cent
  • 5Y average ROCE of less than 10 per cent
  • 5Y average revenue growth of less than 10 per cent
  • 5Y average stock return of more than 20 per cent

Here's what we found.

While what drove up the share prices of these companies is open for debate, one thing is for sure - it wasn't their performance.


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