RS Software – Multibagger Analysis

For few weeks I am observing RS Software on the limelight – more investors and mutual funds are choosing it.

Is it valid to purchase an already spiked stock?

A value investor ensures the spikes did not made the stock over priced based on value parameters.

About RS Software

RS Software has focused exclusively on the payments industry since its inception in 1991. Our payments expertise has helped clients address the convergence of payment types, the proliferation of mobile devices, the move to cloud computing and the introduction of new strategies, such as behavioral targeting. No other custom software provider delivers more industry-specific knowledge and experience to organizations competing for market share in the payments space.

Company URL: http://www.rssoftware.com/

Analysis URL: http://www.screener.in/company/?q=517447&con=1

CMP: 525

Warren Buffett Checklist

History of Consistently Increasing Sales, Earnings & Cash Flow Yes. image
Durable Competitive Advantage

Yes.  Company is into payment verification business & own a niche share in India.

image
Future Growth Drivers Yes.  Growing market. image
Conservative Debt (long term debt < 3 Net Profit) Yes. image
Return on Equity must be Above Average Yes.  Company have 38% where we prefer 15% as the average. image
Low CAPEX required to maintain current operations Average. image
Management is holding / buying the stock Yes. 38%.  Promoters increased holding 2 years back. image
Price is Under Valued (< intrinsic value) Yes.  Considering 30%-50% growth the company is trading below its Intrinsic Value. image
Stock Price is consolidating (now) Not.  Only recently the stock witnessed high price movements. image
Stock Price is growing in past years along with EPS growth Yes. image

Additional Futurecaps Checklist

PE, PB Ratio PE: 12; PB 3; Average image
Cash Flow Positive, Net Profit % greater than 8% Cash Flow is Positive.  Net Profit is around 12% which is Good. image
Paying Dividends, Tax Yes. image
EPS Growth Rate 10% in latest year; 50% in previous year; image
Jump in Trailing Results Not. image
Quarterly Results Growing Latest quarter shows 50% jump too which is hopeful. image
Expected Gain in 10 Years Considering average EPS growth of 30% & PE resizing to 20, we can expect the company to give 5-6 times returns in 5 years & Upto 25 in 10 years. image
Volume Analysis High Volume is there; We do not recommend that. image
Power of Brand Good Brand is there. image
Corporate Governance, Reputation of Leaders Good. image
Fraud reported Not in current search. image

 Declaration

Considering the latest quarter & expecting 30%-50% growth in upcoming quarter, coupled with the recent limelight effect on the stock which should attract more investors, we declare the stock as a multibagger.

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But watch upcoming quarter carefully.

Allocation

2% to 3% of your portfolio.  Buying on installments advised.

Disclaimer

Futurecaps recommends 20 to 25 multibaggers per year, we recommend a 25% to 50% allocation of your savings in equity.  The stocks recommended here are gone through Analysts of several years experience in stock market.  Although they were successful in predicting future multibaggers, the overall stock market is a risky game.  So we recommend the reader to put his/her own thoughts & invest wisely.

5 Responses to “RS Software – Multibagger Analysis”

  1. Bhavin Mehta Says:

    It takes much courage to buy at this level.
    3 months back I had screened 3 small cap (< 1000Cr M-cap) Tech. stocks.
    R Systems International, RS Software and Accelya Kale.
    RS Soft has tripled since then while others two are still trading at those levels despite of having same fundamentals and growth stories like RS Soft.

  2. Editor Says:

    Yes. RS & Accelya have same PE ratio; But Accelya – Jun 14 profit is flat, so I sold it after holding for 1 year (100% profit) and bought RS & Kovai with the money.

  3. Editor Says:

    Thank You for notifying on R Systems. We will run a screening over there.

  4. Bhavin Mehta Says:

    Only negative (in fact major negative) with R Systems is…. Promoters are selling their holding.. And market doesn’t like it… Still it can be on watch list.

    My only request to you would be…. You please update on your past recommendations on 3months basis. As companies financial may changes over a time. Hence multibagger declared in past may be come scrap also…
    This will help your readers in decision making.
    Again thanks

  5. Editor Says:

    Thank You for the update Bhavin.

    I checked Share Holding for R Systems, Only see one-time decrease in promoter-holding & there are no risks of pledged shares.
    http://money.rediff.com/companies/R-Systems-International-Ltd/13240021/share-holding?src=comp_research

    Past Recommendations – I think of tracking quarterly basis, but it takes good amount of time. 🙂 To cope with the financial changes & collapsing of companies, I recommend strong diversification of 30-40 stocks – Usually value investor buy & hold for long years.

    I do recommend watching NIFTY PE RATIO as a whole as this is the economic-barometer which will trigger a mass buy/sell.

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