IRCTC share price has corrected 30% to Rs. 4,435 in last 2 days, without any fundamental change, with trading volumes more than double of past 2 week average. Share was ruling at Rs. 2,300 on 30 July 2021, before stock split was announced (ex-date 28 Oct 21), and rose by 175% in less than 3 months, peaking at Rs.6,396 - swiftly breaching Rs. 1 lakh cr mcap. However, last 2 days have shown that share’s downward movement has been swifter. So what’s happening at the PSU monopoly?

Some analysts had started banking in significantly higher passenger rail traffic in future, on the unlock theme and dedicated freight corridor (DFC) coming up, while some others had started valuating it like a technology startup, but can you hazard a guess on the company’s valuation multiple?

Ok, we’ll give you a hint – it stood at 35x on Monday, and is still about 25x, after the two-day fall.

Now hold you breadth! This is not company’s PE multiple or even EV/EBITDA multiple. But the revenue multiple. Yes, based on the topline and not net profit. And this revenue multiple is not historic or based on covid impacted year, but future earnings, assuming normalisation of travel. FY20 revenue stood at Rs. 2,275 cr. At the time of IPO exactly 2 years ago, company’s revenue multiple stood at 1.5x.

When valuation becomes stretched, they are seldom sustainable for long, as was also seen for Avenue Supermarts, which corrected 21% in last 2 days as well, even after growth in Q2 earnings. And generally, the downward journey is more painstaking!

Thus, the next time you embark on Momentum Investing, do pause for a moment.

This is not a Buy or Sell recommendation, while stock recommendations are provided exclusively to our paid members in the Member Zone.