Is Retail a Bubble?

Is Retail a Bubble?

Retail stocks are currently valued at extraordinary PE ratios. The analysts coming on TV keep on repeating a simple mantra – the future looks bright.

Now, I have heard this before, during the IT boom, during the SEZ boom, during the Real estate boom….

TRENT for example, has a market price of 1052. Its 2010 earnings are 0.79, yes seventy nine paisa per share giving a PE of over 1000. If we take the Q1 earnings (Rs 4) and multiply it by 4 to get 2011 EPS, that comes to 16, giving a PE of 65. Same story for Shoppers stop.

Why I worry (a habit!)

Today morning while I was on Awaaz, I heard a strong endorsement of retail stocks from the anchors as well as from an analyst. This led to to worry about retail investors (you and me) getting pushed into buying these stocks. Always look for value in an investment. Growth stories are good for trading with a stop loss, but investing in them, specially without adequate knowledge, is a disaster.