It’s conventional wisdom that markets are efficient. That means, whatever is the price of stock is the most accurate value of the company, and it represents all available information.
How do you explain the following then?
Just Dial is an Indian b2c listing marketplace trading at 4500 crore market capitalization. Guess what! It has cash in bank of 5700 crore. So, if you buy the company at its current market cap, they are PAYING YOU 1100 crore to buy the company.
It is net negative price right now!
Surely that’s not efficient right? Even if the business was dying (which it is not) and making some loss (which it is not), it should not be trading below the cash it has in its bank account. Imaging paying 10 rupees for an envelope and getting 11 rupees inside it. You got the envelope for free and gained a rupee!
Just Dial has grown revenues at a CAGR of 11% and net profit at 20% since 2021, which clearly indicates that this a decently healthy business.
I disagree with one of the biggest assumptions in the efficient market hypothesis. It assumes that people are rational. I would say that market forces are rational a lot of the times, especially if you take a long-term view, but from time to time it makes decisions based on narratives and non-rational thinking. People aren’t logical all the time and take decisions emotionally which may seem illogical.