Is Trident overvalued or undervalued?

Understanding Trident’s Valuation Metrics

Trident’s price-to-earnings (PE) ratio stands at approximately 31.9, which is moderate within its industry context. While this figure might appear elevated compared to some peers, it is important to consider the company’s price-to-earnings-growth (PEG) ratio of 0.85. A PEG ratio below 1 typically suggests that the stock is undervalued relative to its earnings growth potential, signalling an attractive investment opportunity.

Further, Trident’s price-to-book value is 3.07, indicating that the market values the company at just over three times its net asset value. This is reasonable for a firm in the garments and apparels sector, where brand value and operational efficiency often justify premiums above book value.

Enterprise value (EV) multiples also provide insight: the EV to EBIT ratio is 25.06, and EV to EBITDA is 15.76. These multiples are competitive when compared to peers, suggesting that Trident is not excessively priced relative to its earnings before interest, taxes, depreciation, and amortisation.

Peer Comparison Highlights

When compared with its industry peers, Trident’s valuation appears attractive. For instance, K P R Mill Ltd is classified as very expensive with a PE ratio nearing 44 and an EV to EBITDA of 28.24, significantly higher than Trident’s multiples. Similarly, Garware Technologies and Pearl Global Industries are also considered expensive or very expensive, with PE ratios above 29 and EV to EBITDA multiples exceeding 18.

On the other hand, companies like Arvind Ltd and Raymond Lifestyle are rated very attractive but have different valuation profiles. Arvind Ltd’s PE ratio is lower at 22.76 with a PEG of 0.55, while Raymond Lifestyle’s PE is notably high at 83.88 but with a zero PEG ratio, indicating no expected earnings growth or data unavailability. Trident’s PEG ratio of 0.85 positions it favourably as a growth stock without the excessive premium seen in some peers.

Some peers such as Swan Corp and Alok Industries are marked as risky due to negative or loss-making earnings, which further underscores Trident’s relative stability and attractiveness.

Market Performance and Financial Returns

Trident’s stock price currently trades at ₹27.81, down slightly from the previous close of ₹28.06. The 52-week price range spans from ₹23.20 to ₹40.17, indicating some volatility but also room for upside from current levels. However, the stock has underperformed the Sensex over various time frames, including a year-to-date return of -16.8% compared to the Sensex’s positive 8.25%.

Despite recent underperformance, Trident’s long-term returns are impressive. Over five and ten years, the stock has delivered cumulative returns of 253.4% and 407.9% respectively, significantly outpacing the Sensex’s 93.0% and 228.2% returns over the same periods. This long-term outperformance suggests strong underlying business fundamentals and growth potential.

Financial efficiency metrics such as return on capital employed (ROCE) at 10.73% and return on equity (ROE) at 9.61% reflect moderate profitability, consistent with industry norms. While these figures are not exceptionally high, they indicate steady operational performance and effective capital utilisation.

Conclusion: Attractive Valuation Amidst Mixed Market Sentiment

Taking all factors into account, Trident’s current valuation metrics and peer comparisons suggest that the stock is attractively valued rather than overvalued. The recent upgrade from a fair to an attractive valuation grade reflects improved market perception and a favourable risk-reward profile.

While the stock has experienced short-term price weakness and underperformed the broader market recently, its long-term returns and reasonable valuation multiples support a positive outlook. Investors seeking exposure to the garments and apparels sector may find Trident’s combination of growth potential and valuation appealing, especially when contrasted with more expensive or riskier peers.

However, potential investors should remain mindful of sector-specific risks and monitor operational performance closely, as the company’s profitability metrics, though stable, are not exceptionally robust. Overall, Trident presents a compelling case as an attractively valued stock within its industry.

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