I am intruiged by the price action of Tata Motors over past month. While the latest earning report was really a great leap from the past years, however it did not actually set the stock on fire. May be it has something to do with the run up in the stock prior to earning.
It actually hit a new high in both NSE (Parent Listing Exchange) only to retrace back, however it subsequently went up and retested that high but failed to break to new high's.
On NYSE it went up and tested new highs and then some more. However over last few weeks it has given up all the gains and now treading below pre earning resistace of 28.
There are several important factorss, which seems to indicate the company will be a good play long term if overall market direction is positive.
1. Very low Debt/Equity ratio : while looking at the debt figure of many large or comparable auto maker, it seems TTM has a much lower debt. In this era of cheap money, debt servicing for most of the bigger company does not seem to be adversly affecting them, however it definately gives TTM an edge over them. It also means that company could price it products lower or allow for higher sales expense and still be better overall.
2. Higher Operating Margin : TTM has definately much higher operating margins than most of the competition.
3. Global Spread : it is operating in not only growing asian marketrs ( India, China) but also in Oil Rich Russia and traditional Europe and NA markets. This definately gives it larger cushion to offset short term setbacks in any one market. Barring a global debacle as we saw in 2008, company should be able to withstand some downturn in one of it's markets.
4. PE of only around 9 at current prices ( $26). the trailing two quartes has earning of around $ 1.7 and the dec quarter should also bring in approx 80c, so even in worst case scenrio, the yearly earning should touch around $3. Any other company in this space has a P/E of around 15.
5. There is no indication of a demand slowdown in any of it's product. High end luxary segment should see some pressure, however that should be more than compensated by increasing sales at other segments. the global and domestic sales numbers of last few months continue to show increasing sales, though there were some signs of stalling sales in December.
Overall i think this should move higher, it appears that it might have created a short term bottom and probably consolidating here. It would be anyone's guess when it will start the next leg up. Not sure if there are any short term catalyst which can help but in lomg trem it should definately move up.
Comments are most welcome.
Disclosure: I am long TTM.
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