You see, there's a book by the title 'Inside the Investments of Warren Buffett: Twenty Cases' by Yefei Lu. His view is that one should have the purchase price to be so attractive that even a mediocre selling price brings good results.Īnd he has indeed walked the talk on this. He is often heard saying that one should not rely upon a great selling price.

Therefore, even for LTTS to give good returns, it will have to stay at the current elevated PE levels for a considerable stretch of time.Īnother way of approaching this is following the famous Warren Buffett dictum. Although the stock does not command a PE multiple as high as Tata Elxsi, its TTM PE of 32x is greater than its long term average of 25x. The only way the stock can end up giving good returns from here is if the earnings continue to grow at a strong pace and the PE multiple stays in the current zone of 45x-50x.ĭitto for LTTS as well. Therefore, even if we assume that Tata Elxsi's earnings were to double in 3 years and apply the long term PE multiple of 30x, the potential upside is nothing much to talk about. This is significantly higher than its 5-year as well as 10-year median PE which is in the range of 30x. Tata Elxsi still trades at a TTM (trailing twelve month) PE of more than 50x. To be fair to the analysts though, both the stocks are not cheap even after the 40% correction from the top. Have these analysts erred and have fallen prey to the herd mentality or is there more pain in the offing for both Tata Elxsi as well as LTTS? A 'SELL' rating when both these stocks are down massively from their all-time highs does not make sense.Ī 'SELL' call should have come when these erstwhile multibagger stocks were trading at life-time highs and not after they have already corrected almost 40% from the top. I find these ratings a little perplexing to be honest. Interestingly, only 1 analyst has a 'Strong Buy' rating on each of these stocks.

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