Back in April 2013, the share price of Wipro crashed from Rs 450, and in June it touched a low of Rs 325. The main reason given by stock market experts on TV for the crash was the de-merger of its non-IT business. If the non-IT business had contributed a major chunk of income for Wipro, the price crash would have made sense to reflect the new reality — but the non-IT business contributed very little to Wipro's net profit. The major money maker for Wipro was its IT business, and that was not affected by the de-merger. So you have to ask yourself: was the crash justified? We didn't think so.
If you had looked at the various valuation models we calculate, you would have seen the following numbers:
- DCF Valuation
- Rs 464
- 2-Stage DCF
- Rs 250
- P/E Ratio Valuation
- Rs 511
- EPS Growth Valuation
- Rs 556
- Graham Number
- Rs 235
- Book Value
- Rs 108
- Median Fair Value
- Rs 487
- 20% Margin of Safety
- Rs 390
With the fair value at Rs 487 and a 20% margin of safety at Rs 390, Wipro was a strong BUY when its market price was between Rs 325 and Rs 350 in June and July. You should have ignored all those so-called stock market experts and bought the stock. The current price (as of 12 August 2013) is Rs 447 — a gain of 35% (assuming you bought the stock at Rs 330) in just two months, with low risk, while the overall market has crashed.
We have sold the majority of our Wipro stock since there are other stocks that are looking attractive thanks to the recent crash.
What can you learn from this? Ignore the so-called stock market experts, focus on the fundamentals, and you will make a lot of money.
This email was sent to our members on 12 August 2013.
Note — We do not offer investment advisory services.