We use the IT sector as a case study for how to conduct peer comparison with our screener tool
As equity investors, we want to pick the best of the herd. But how to identify which one is the best? And best in what? Share price, revenue growth, net profit, dividend yield?
With the number of factors that goes into analysing a company, picking a stock sure can get jarring at times.
This is where our stock pages come in. In our stock pages, you can easily analyse how a company has been performing financially, if it is ahead of its peers, or if valuation justifies its recent performance. Let's say you want to invest in the IT sector.
We all know who are the obvious options - Wipro, TCS, Infosys, HCL Technologies and LTIMindtree. But now the question is which one?
Let's pick Wipro and check how it fares against its peer.
Step 1: Login into your account. Simply type Wipro in the search bar of our homepage. This will open up four columns. Under stocks, click on Wipro. This will take you to Wipro's stock page.
Step 2: On the stock page, if you scroll down to the peer comparison section, you will see four search bars. Enter the four major peers of Wipro (TCS, Infosys, HCL Technologies and LTIMindtree). This will get you to the screen shown below.
The above results are not surprising. The Indian IT sector has been struggling for the last few quarters thanks to inflation, higher employee expenses, the aftermath of COVID, etc.
However, Wipro's steep decline compared to its peers is indeed surprising. Although all the companies in the list have seen a significant correction in the past year, Wipro is the worst-hit, with its share prices falling by about 41 per cent.
Okay, so something must be off. The next step is obvious. We have to find out what has led to the markets favouring other tech giants over Wipro.
Step 3: Just below the price graph, you will see "peer comparison." Click on that. It will take you to the screen below.
Now you will be able to see how Wipro's financials fares against its peers' and explore what has led to Wipro's steep drop.
For example, Wipro's topline growth parallels the industry and its peers. However, its EBIT and net profit growth (this can be found under the growth ratios section) have been red for the last 12 months. Also, its EBIT margins have been falling for the last 12 months.
Step 4: Now that you know what might be causing Wipro's correction, the next step is to verify if this is a blip or a trend. For that, you can simply click on the bar graph symbols next to the financials.
For example, if you click on the bar graph symbol next to the EBIT margin, you will get to this screen.
As you can see, Wipro's EBIT margin has been on a steady decline since FY21.
The final verdict
Investors should note that the above example and exercise were to demonstrate how you can use our tools for peer comparison and identify trends. In this case, Wipro clearly has been lagging behind its peers on many fronts.
However, identifying how a company has been performing compared to its peers is only one facet of analysis. Before investing, a plethora of other factors require exploring, such as growth outlook, leverage, management, etc. And your investment decision should also depend on your risk appetite and investment horizon.
Suggested read: When the fundamentals tell a different story