Compared to my other investments, this is one of the recent and very small investment :
13/10/2016 : Bought at ₹23.30.
The current market price of Morepen Labs is ₹41.75.
Overall profits to date : 79%.
Price update : 12/03/2019 : ₹19.35
(Overall profits to date : -17%)
Company : The company is in health and wellness business, with a manufacturing facility in Baddi, HP. Further information about the company is available on their website.
My rationale : I like this company because it reflects consistent revenue an profit improvement year over year. It is a positive that the company is in health industry, which will be one of the highest growth sectors in Indian economy.
The company has improved it’s profit before tax from -24cr in FY 2013 to +24cr in 2017.
News: on 20/12/2017, the company received USFDA approval for its Asthma drug sale in US market. This positive development has definitely reflected in the company share prices since then. This is very much like a bonus you get after a successful completion of a project/assignment in your company.
I evaluated the financials as follows :
- Revenues : Same as your monthly or annual salary.
YoY (year on year/annual) Revenue growth : 2014/2015/2016/2017 has been 12%/9%/21%/21%
The revenue for this purpose is the total revenue for the company.
Takeaway : The company has been able to grow revenues consistently every year. The growth rate has been stronger in the last 2 years. Following the USFDA approval, if the company can boost sales in FY 2017-2018, it should improve the stock values in the future.
- Total cost for the company : similar to your expenses (rent, Uber, Ola, petrol, food, etc) to earn the salary.
Cost growth 2014/2015/2016/2017 has been 6%7%/17%/20%.
Takeaway : From 2014 to 2016, the cost growth has always been lower than the revenue growth. In 2017, due to higher employee expenses and other expenses, the cost growth was almost equal to revenue growth.
- Profit/Loss before tax : Similar to your savings at the end of year (Annual Savings = Annual salary – Annual expenses). A difference is that you pay the tax before the monthly salary reaches you.
Growth 2014/2015/2016/2017 has been 76%/140%/648%/38%
Takeaway : This is the strongest aspect of this company. They have moved from net losses in 2013 to net profits since 2015. This for me reflects the business acumen of the management and their knowledge of the industry. The company is not only able to find niches for itself, but also use them profitably.
- Cashflow : The companies are allowed some non cash expenses (e.g. depreciation) to help them replace those assets at the end of their useful life. A cashflow statement provides you with the information on how the yearly cash profit is used in following :
- Investing activities : investing in different options to help them excess money grow
- This is similar to you investing your extra cash in PF, PPF, mutual funds, equity shares ULIPs etc to have interest income or principal appreciation.
- Financing activities : shows if the company is repaying or getting more finances (a negative number might mean that the company is repaying its debt and hence reducing its interest payments for next years)
- This is similar to you repaying your car or home loan during the year from the Bonus or increment during the year.
The company has been using its profits from operations as follows :
- Investing activities : yearly increase in investments, except in 2017 due to high repayment of financing. (invested 15cr in 2017, about half of 2016 and 015),
- Financing activities : yearly repayment of interest based financing, thereby improving the profitability for future. (repaid 47cr in 2017)
Other things to note when buying a stock:
- Trading volume : the number of share bought or sold on a given day.
Note : The higher the trading volume, the better it is. If you are not comfortable with the investment, it allows you to sell it easily.
- Price charts : these are simple line charts, showing the price movement for a period of time.
Note : This is a simple line chart, as most of you probably use in your daily work. It is recommended to track the price for a long time period (1-3 years) to have a more consistent performance outlook.
- Quarterly results : the revenue, costs, profit before tax analysis can also be replicated for the company’s quarterly performance analysis. Very similar to how you have a mid year performance review in your jobs.
Why did I invest : This company combines 2 aspects which I like to invest in : consistency and health industry. Based on our current lifestyles, it is not a surprise that we are spending more on medical and healthcare than our previous generations. This means that the pharma companies will only see a rise in the demand for their products. The financials of this company shows that the management knows which market and business areas will the growth come from.
Other useful pages :
This is a personal investment strategy that I have used for myself. The investment made is real with my own personal money. The purpose of this post is to educate the reader on how to evaluate the financials of a stock and make informed decisions for his investments. All investment decision carry financial risk and you should consult with an investment professional before making any investment decision
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