Is Weizmann overvalued or undervalued?

Understanding Weizmann’s Valuation Metrics

Weizmann’s price-to-earnings (PE) ratio stands at a negative figure, reflecting recent earnings challenges or accounting adjustments that have impacted profitability. Despite this, the price-to-book (P/B) ratio is at 2.63, indicating that the stock trades at more than twice its book value. This suggests that investors are pricing in growth or intangible assets beyond the company’s net asset value.

The enterprise value to EBITDA (EV/EBITDA) ratio of 10.23 and EV to EBIT of 13.76 place Weizmann in a moderate valuation range relative to earnings before interest, taxes, depreciation, and amortisation. These multiples are neither excessively high nor particularly low, signalling a balanced market view on operational profitability.

Return on capital employed (ROCE) is a robust 18.32%, highlighting efficient use of capital in generating profits. However, the return on equity (ROE) is negative at -5.53%, indicating that shareholders’ equity has not been generating positive returns recently. This dichotomy suggests operational strength but potential financial or equity-related challenges.

Peer Comparison and Relative Valuation

When compared with its peers in the garments and apparels industry, Weizmann’s valuation appears expensive but not extreme. For instance, K P R Mill Ltd is rated "very expensive" with significantly higher EV/EBITDA multiples, while companies like Trident and Arvind Ltd are considered "attractive" or "very attractive" based on their valuation and growth prospects.

Weizmann’s EV/EBITDA multiple of 10.23 is lower than some peers such as K P R Mill Ltd (27.21) and Garware Tech (23.9), but higher than Vardhman Textile (10.11) and Arvind Ltd (11.55). This places Weizmann in the mid-to-upper valuation tier within its sector, reflecting moderate investor confidence but also some caution.

Its PEG ratio is zero, which may indicate a lack of meaningful earnings growth or data irregularities, contrasting with peers like Trident (0.85) and Pearl Global Ind (1.19) that show more favourable growth-adjusted valuations.

Market Performance and Price Movements

Weizmann’s stock price currently trades at ₹107.20, closer to its 52-week low of ₹88.10 than its high of ₹157.65. This suggests the market has tempered expectations over the past year. The stock has underperformed the Sensex significantly over multiple time frames, with a year-to-date return of -22.79% compared to the Sensex’s 9.60% gain, and a one-year return of -16.48% versus Sensex’s 7.32%.

Longer-term returns, however, tell a different story. Over five and ten years, Weizmann has delivered impressive cumulative returns of 225.34% and 523.26% respectively, outperforming the Sensex’s 91.78% and 227.26% in the same periods. This indicates strong historical growth and value creation despite recent setbacks.

Is Weizmann Overvalued or Undervalued?

Taking all factors into account, Weizmann currently appears to be priced on the expensive side, though not excessively so. The downgrade from "very expensive" to "expensive" valuation grade reflects a slight moderation in market expectations. The negative PE ratio and ROE raise concerns about recent profitability and shareholder returns, while the solid ROCE and moderate EV/EBITDA multiples suggest operational efficiency and reasonable earnings power.

Its valuation relative to peers is mixed, with some competitors offering more attractive growth and valuation profiles. The stock’s recent underperformance against the broader market further supports a cautious stance. However, the company’s strong long-term returns and reasonable price-to-book ratio indicate that it is not fundamentally overvalued to an extreme degree.

Investors should weigh Weizmann’s operational strengths against its earnings challenges and sector dynamics. For those seeking exposure to the garments and apparels industry, it may be prudent to consider alternative stocks with more favourable valuations or stronger growth prospects before committing capital to Weizmann at current levels.

Conclusion

In summary, Weizmann is currently overvalued relative to its recent earnings performance and peer group, but not to a degree that suggests an immediate sell-off. The stock’s valuation reflects a premium for its historical growth and operational efficiency, tempered by recent profitability concerns. Investors should monitor upcoming earnings and sector trends closely, and consider diversification within the industry to optimise risk-adjusted returns.

Limited Time Only! Subscribe for Rs. 12,999 and get 1 Year of MojoOne + an Additional Year Completely FREE. Don't miss out on this exclusive offer. Claim Your Free Year →