Winsome Yarns Limited (NSEI:WINSOME), a INR₹166.16M small-cap, operates in the consumer discretionary industry, whose performance is predominantly driven by consumer confidence. Macro elements tend to determine how fast, and how often, consumers buy luxury goods. Consumer discretionary analysts are forecasting for the entire industry, a relatively muted growth of 8.28% in the upcoming year . Today, I will analyse the industry outlook, and also determine whether Winsome Yarns is a laggard or leader relative to its consumer discretionary sector peers. View our latest analysis for Winsome Yarns
What’s the catalyst for Winsome Yarns’s sector growth?
E-retailing is expected to remain the fastest growing sales channel, shifting the retail landscape. Significant number of retail store closures and bankruptcies were an indication of both changing consumer preferences and rising online competition. In the past year, the industry delivered growth of 3.81%, though still underperforming the wider Indian stock market. Winsome Yarns lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Winsome Yarns may be trading cheaper than its peers.
Is Winsome Yarns and the sector relatively cheap?
Luxury goods companies are typically trading at a PE of 13x, lower than the rest of the Indian stock market PE of 29x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry did returned a lower 6.98% compared to the market’s 9.78%, which may explain the lower relative valuation. Since Winsome Yarns’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Winsome Yarns’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Winsome Yarns recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Winsome Yarns as part of your portfolio. However, if you’re relatively concentrated in luxury goods, you may want to value Winsome Yarns based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Winsome Yarns has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the luxury goods industry. Before you make a decision on the stock, take a look at Winsome Yarns’s cash flows and assess whether the stock is trading at a fair price.