In Mar/23, I met a friend who told me about this new car, Haval, which was an amazing value for money. It was introduced by Sazgar Engineering (PSX: SAZEW). There were import bans in place then, so I didn’t pay much attention to it.
In Jul/23, Pakistan had resumed the IMF program, import curbs had ended, and the stock market had started showing signs of recovery. While looking for alpha-generating stocks, I came across SAZEW again.
I checked out its last quarterly report; the company had already reported an EPS of 7.4 rupees. I crunched some basic numbers and concluded that it could deliver an annualized EPS of more than 30 rupees at that run-rate, thereby implying a P/E ratio of only 2x. An approx. 50% earnings yield (EPS/Price) was mind-boggling.
I conducted a downside versus upside analysis. The market capitalization at that time was less than 3 billion rupees, which seemed extremely under-appreciated to me given SAZEW was already the market leader in three-wheelers. There wasn’t much to lose.
The upside potential, on the other hand, was literally the sky’s limit. Economic revival together with additional word of mouth had the potential to triple or even quadruple its sales volumes due to low base effect.
I accumulated some shares for friends at an average cost of 66 rupees. However, the company kept shattering all expectations in terms of volumes as well as margins, thereby leading to an astounding price performance over the last 10 months.
SAZEW reported an EPS of 50 rupees for Mar/24 quarter, whereas the stock price itself was 66 rupees in Jul/23. While it was nearly impossible to project this level of profitability, a multi-bagger potential did exist in Jul/23 but it was a risky bet as the company had only reported one such result.
I tried to trade a couple of times during this journey and ended up missing a portion of this rally. However, I did manage to ride a big majority.
A downside versus upside analysis allowed me to take this bet and helped generate a massive outperformance. My key takeaways from this journey are:
1) Valuations are key to investments; they also define the level of risk we take.
2) At the same time, it’s extremely important to let our imagination do its part without any limitations instead of forcing barriers on it.
3) Don’t trade unnecessarily; invest for the long haul.