Beware Of These 5 High Returning but High PE Stocks

The recent rise in commodity prices and the government’s cash ban have been major setbacks for the so-called ‘growth’ stocks, which enjoy high PE multiples on account of their above-average earnings growth comparative to the broader market. Many of these stocks are from the Realty household sector, which generally have stable earnings outlook. But as earnings recovery gets deferred for India Inc, especially on the consumer side, analysts are advising investors to become cautious of high PE stocks despite the recent correction.

Below are a few stocks that have yielded high returns since budget but have high PE and lowest institutional holdings.

Realty-Household:

PGEL: PG Electroplast Limited is a diversified Electronic Manufacturing Services and Plastic Injection Molding company looking after the requirements of leading OEMs in Consumer Electronics and Automotive Industry.

PGEL share price movement:

At 12:09 PM on 22nd December 2016, PGEL share price was trading at Rs. 28.50 with the day’s decline of over 5 per cent.

Below is the table of movement of PGEL share price:

52 week highfall from 52 week highbudgetEPS Sept 16EPS June 16EPS march 16EPS Dec 15EPS Sept 15Institution holdingPEDebt-Equity

199.7

35.65%

149.03%

0.03

0.76

3.72

-1.92

-0.81

2

52.6

0.63

Highlights: Since the day of the budget on 22nd February 2016 the stock has risen 149 per cent.

Why should you avoid?

Although the stock has gained a space among the top 500 performance for the quarter, the chart above shows it has already begun it’s descend. Apart from the March quarter of the year 2016, the company’s EPS data is miserable. The institution holding is also very low in the company and the PE is also very high at 52.6 per cent. Even though looking at the returns the stock might look pretty attractive, it is still advisable to stay away from PGEL.

Uniply: This is yet another stock from the Realty-Household sector that poses a threat to the shining portfolio. Uniply is involved in the making of Veneers, plywood, doors and boards.

At the time Uniply share price was trading at Rs. 209.30, dipping by 2.63 per cent intraday.

52 week highfall from 52 week highbudgetEPS Sept 16EPS June 16EPS march 16EPS Dec 15EPS Sept 15Institution holdingPEDebt-Equity

321.9

35.09%

149.95%

0.75

0.86

0.45

0.49

0.47

4

95.13

1.47

Highlights: Uniply has gained almost 150 per cent since the budget day when market made a low and the chart below reflects it is still going good. Also, the company has a Debt-Equity less than 2.

Why should you avoid?

Even though the company has given out a stable EPS every quarter on the standalone basis yet the figures aren’t impressive at all. The company has only 4 institutional holding and has the PE of 95. The company also has 51.82 per cent promoters holding pledged. The stock might look attractive at the price and the kind of yields it has been giving yet it has not got the strong fundamentals that can back it up and keep it in the list of top 500 performing stock for the quarter as it has been identified by Dynamic Levels currently.

Financial Services:

Aalankit: Alankit Group is a conglomerate of 9 Group companies with diversified activities into Financial Services, e-Governance, Insurance and Health Care verticals. The company has recently gone through the share-split.

Currently Alankit share price is trading at Rs. 33.30 being one among the few stocks who were trading in green in an otherwise red market.

52 week highfall from 52 week highbudgetEPS Sept 16EPS June 16EPS march 16EPS Dec 15EPS Sept 15Institution holdingPEDebt-Equity

85

60.35%

100.00%

0.46

0.53

0.54

0.18

0.18

2

77.48

0

Highlights: The stock has doubled the returns since 22nd February 2016.

Why should you avoid?

Even though the stock is still trading strong and looks very tempting owing to its yield Alankit has high PE ratio of 77.48. The company’s EPS aren’t very attractive as well. Precisely that is why even after being in the top 500 performing list of stocks one should avoid getting hands on it.

HOV Services: HOV Services Limited ("HOVS") runs as a hybrid between investment and diversified services corporation. HOVS has grown over the last ten years through series of key acquisitions. The Company believes that this operational structure is essential to their value proposition for their future success.

At the time, HOV Services share price was trading at Rs. 109 slipping by approximately 2 per cent.

52 week highfall from 52 week highbudgetEPS Sept 16EPS June 16EPS march 16EPS Dec 15EPS Sept 15Institution holdingPEDebt-Equity

131.80

16.92%

69.73%

0.21

0.22

0.45

0.18

0.01

1

91.68

0.04

Highlights: HOV Services has gained almost 70 per cent since the budget day when market made a low and it is still going good. Also, the company has a Debt-Equity less than 2.

Why should you avoid?

The company has the very high PE and their EPS has not been any impressive as well. Also, there is just one institutional holding in the company. It is an indication that one should not be tempted by its attractive valuation and must avoid it even when it is the top 500 performing stock for the quarter.

Infra-Power:

Energy Development: The Company concurrently generates clean, green electricity from water and wind in its own power plants as well as develops energy and infrastructure projects for other developers. The company at present has 19 MW of renewable energy capacity and has 291 MW of hydroelectric projects at various stages of development. The Company has goals to develop and own around 500 MW of new Hydro Electric Power Projects at an estimated capital outlay of Rs.7000-8000 crores in the next 5-7 years.

As of now, Energy Development share price is trading at Rs. 58.05, just 0.26 per cent lower than its previous close.

52 week highfall from 52 week highbudgetEPS Sept 16EPS June 16EPS march 16EPS Dec 15EPS Sept 15Institution holdingPEDebt-Equity

248

76.59%

520.13%

0.69

-0.65

0.61

-0.55

1.33

3

916.41

0

Highlights: The stock has grown stunningly since budget hitting 520 per cent gain.

Why should you avoid?

The chart above shows that the stock has already beginning to decline. The company has ridiculously high PE ratio with not so attractive EPS payouts in every quarter. Also, the institutional holdings are just 3. This makes the stock risky, even more than the returns it has been offering of late. It has been among the top 500 performing stock for the quarter.

Conclusion: These high PE stocks might look very attractive at the current valuation as they have been yielding high returns. Yet it is not advisable to put them in your investment portfolio. They are just too risky and not worth the losses they can befall.

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