KITEX garments, a stock which multiplied more than 25 times in the last 5 years has clearly outperformed the broader market. It is such a rate of return which any investor would love to earn and that made me think that “Can GOKEX be the next KITEX?”
This, however, is not a right way to analyze a stock. Since GOKEX (Gokaldas exports) belong to the same market segment so it would be very unfair to say that it may be the next KITEX so further research is very essential to analyze the company. Just like Aamir Khan, a superstar in Bollywood so does his brother Faisal Khan who is also an actor attained the fame and success in the industry. Even though they carry the same genes, one is a superstar while about the other, people might not know about him.
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This is a very big mistake which people commit in the stock market.
Just like Page industries, a manufacturer of Jockey and Lovable Lingerie belong to the same undergarment segment but however, Page Industries has outperformed the market while Lovable lingerie has clearly underperformed the market in this bull phase where even some penny stocks without any fundamentals have shown good performance.
So the conclusion is that whenever you come across such a situation, start your analysis in isolation independent of the stock it resembles.
Let us analyze the difference in the business of GOKEX and KITEX. Based on the parameters given below we can identify how the two similar businesses which we are comparing could be different.
|Portfolio of product||Garments for men, women, and kids including sportswear, formal wear, and denim.||Children Apparel|
|Customers||PUMA, ADIDAS, NIKE, REEBOK, DIESEL, A&F, GUESS, RAYMOND, GAP, United Colours of Benetton, Reid, and Taylor, etc.||Gerber, Turtle, Mother care, Tesco, Toys R Us, etc.|
|Competition||High and both from organized and unorganized markets.||High and mainly from the unorganized market.|
PAST PERFORMANCE ( Average of FY 2011-15)
|Sales Growth (%)||-2.04||18.87||KITEX has shown commendable performance due to its brand value and product quality because parents prefer quality products for their junior ones because of the sensitivity of their skin.|
|Net Profit (%)||66.69||47.83||Despite weaker sales growth, GOKEX has outperformed on profits front because of its lower operating base.|
|Operating Margin (%)||28.50||38.87||The probable reason of KITEX could be because of its large scale of operations and thus enjoys economies of scale.|
So from the above tables, it could be concluded that though both companies belong to the same industry but their financial performance, product portfolio, competition scenario, customers looks very different.
So a proper analysis removes such bias and gives us a clearer and better picture.