Holding Zomato and Lenskart at massive valuations: Should I book profits or hold for the next 5yr?

Buying fundamentally great companies at exorbitant prices often leads to years of dead money, so you should not hesitate to exit when the risk-reward ratio no longer makes sense.

Let's look at the math behind these astronomical valuations. Zomato is a strong business but its PE ratio has hovered around 700. Even if the company's profits were to grow 10x from here, the PE would only drop to 70.

Expecting a stock to deliver 30% continuous growth at a 700 PE is a very dangerous assumption. Historical precedents show us what happens when euphoria takes over. Look at Trent which experienced massive euphoria before correcting almost 50% from its peak.

Even fundamentally sound companies like ITC saw virtually zero returns between 2012 and 2022 for investors who bought at the wrong valuations. If you hold stocks trading at 250 PE or 1250 PE, consider booking profits without regret.

If the stock runs up another 5% after you sell, do not stress about it. No investor can perfectly time the top or bottom. The goal is simply to exit when the math stops making sense and protect your capital.

Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.