Ranbaxy has seen an extraordinary rise from a low of Rs.250 in early August to Rs.460 as of yesterday...The stock appears to be in an exceptionally strong uptrend and the rise is mostly supported by uncertainty/non-clarity around the expected turnaround benefits if the rumors of it being cleared by FDA came true.
But we believe even if those rumors be true for the time being it seems to more than price the immediate benefits of the same and there is no error of execution built in it. We expect the same to be priced in as risk-reward appear to be fair hereon.Why?
Check the chart below which shows that EV/EBIDTA is now back to average of the last 5 years. So valuations are no more distressed or cheap.
Even on P/FCF basis the valuations are back to averages.
However, given the strength of the stock we do recognize that the stock could further surge from here. But its more likely that it could take a breather before surging ahead and given the sharp rise that could be a big swing downwards.
So how to play the stock then?
We advise to SELL CALL OPTIONS at strike price of Rs.500 and above.
Use that money to BUY PUT OPTIONS at strike price of Rs.410
STOP LOSS at cash price of Rs.480...the immediate resistance and next resistance at 510 will be hard to breach
Expect put prices to more than double in the current series...fund the same selling call options...returns will be very high.
Good Luck !!!
But we believe even if those rumors be true for the time being it seems to more than price the immediate benefits of the same and there is no error of execution built in it. We expect the same to be priced in as risk-reward appear to be fair hereon.Why?
Check the chart below which shows that EV/EBIDTA is now back to average of the last 5 years. So valuations are no more distressed or cheap.
Even on P/FCF basis the valuations are back to averages.
However, given the strength of the stock we do recognize that the stock could further surge from here. But its more likely that it could take a breather before surging ahead and given the sharp rise that could be a big swing downwards.
So how to play the stock then?
We advise to SELL CALL OPTIONS at strike price of Rs.500 and above.
Use that money to BUY PUT OPTIONS at strike price of Rs.410
STOP LOSS at cash price of Rs.480...the immediate resistance and next resistance at 510 will be hard to breach
Expect put prices to more than double in the current series...fund the same selling call options...returns will be very high.
Good Luck !!!
