Look at this chart, and ask yourself why there's such divergence in performance between these stocks:
Some (mutually exclusive) possibilities:
- The REDF chart suggests that the stock has run up on sudden momentum, not fundamentals. In the longer run, the two stocks track each other relatively well.
- REDF suddenly outperformed SIFY because REDF turned profitable in Q2, whereas SIFY is still losing money (including on a cash-flow basis).
- REDF is a fundamentally better business than SIFY. Its revenue growth in the latest quarter was 53% in Q2, verus 31% for SIFY. More important, the Internet content business (REDF is a portal) should have far higher margins and operating leverage than SIFY's corporate and retail Internet access business.
Final quick thought: If SIFY controls a large network of Internet cafes, can't it make its own portal and services the default on the PCs its customers use?
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