When most people invest in the stock market, they come to know the bestselling cigarette in the market after a few days, and the production of a good quality manufacturing and selling king is ITC. And from that time onwards, the research analysis inside the investor would wake up. And after he asks his advisor how it would be like buying ITC share? And the company’s fundamentals, track record, and quality are so good that the advisor does not take any risk and says yes, it’s nice. Buy it.
It is to be seen that every Fundamental strong share should be bought into your portfolio. But all the companies do not want to increase the share price. This does not mean that the company's promoters do not like that their share price does increase. But the activities of the company and the management which activities make investor sell their share when it increases. So, let’s understand which are the facts that do not allow ITC shares to grow.
Dividend
The new investor will be a little shocked; how will the dividend become a reason? When a company gives you a part of the profit from earning as a dividend, then the company's value decreases from that amount from the company valuation. And with that, whatever that company would make money from that profit in the coming future, that hope also goes away. Let’s take an example of this.
The future potential of a company
When a company gave you a big dividend from its profit, at that time, the growth of that company was a little slow. But in the stock market, most people want to double their money and want more than that. That is why people like to invest in a Fast-Growing Company.
And the attraction point of investment in this company is Tobacco Manufacturing. The Indian government is constantly increasing taxes on this product. Because of this, people are a little confused about the future potential of this company. This is a big reason for not increasing the stock price of this company.
Diversification
When a company includes itself in many different sectors, it is difficult to evaluate and track for investors. ITC company is engaged in cigarette manufacturing, FMCG food making, and hotels and hospitality. Now you see, this is a perfect situation in these two sectors (FMCG and Tobacco).
But the hotel sector is still in terrible condition due to Corona. This problem is found in Diversify businesses. There is always some good and bad situation, along with some news. Unless a stock fundament indicates turns green, the stock trades in a sideways zone, and it is difficult for the stock to become a multi-bagger.
Why is ITC’s share price at a standstill?
With a whopping Rs 25000 Crores of Cash just sitting on its balance sheet, ITC is caught between a rock and a hard place! Even after distributing 85% of its profits as dividends, it has ended up putting money in the wrong places (e.g., Hotel business). So, investors aren’t sure what it is going to do with its huge pile of cash!
Some part of the problem can also be attributed to ITC’s ownership structure. There are no promoters, conflicts between investors (BAT & GOI), & an abundance of the supply of its shares in the market.
The business structure of ITC is quite complicated, which makes value discovery difficult. One business generates a lot of cash but has regulatory uncertainty (Cigarette), the other uses cash to generate revenue, but fewer profits (FMCG) & another burns a lot of cash for almost nothing good (Hotels). Thus, investors don’t know on what metrics to judge ITC!
What Causes Share Price Movement?
Stock prices change every day by market forces. Suppose more people want to buy a stock (demand) than sell it (supply), the price increases. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. Understanding supply and demand is easy.
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