A Great Company ≠ A Great Investment
It’s a common fallacy: believing that owning shares of a company with excellent reputation, products, or brand automatically guarantees strong investment returns. In reality, what matters more is valuation at entry and future earnings growth potential. Even blue-chip firms can disappoint if purchased at a lofty price.
Why “Good Business” Isn’t Enough?
1. Valuation Risk
You may buy a rock-solid company, but if you pay too much (high P/E, inflated multiples), your margin for error shrinks. The future upside becomes constrained. At high valuations, even modest earnings disappointments can lead to poor total returns.
2. Earnings Growth is the Engine
True returns are driven by how much a company can grow profits over time. A stable business with stagnant earnings will lag a faster-growing peer, even if both started with “greatity.”
3. The Catch-Up Burden
Investing in a firm that’s already shown exceptional performance often means you expect that performance to continue. If growth slows, your gains will be modest—or even negative—from that high base.
Real Examples: 3-Year Returns of some Blue chips vs. Nifty as on 29 September 2025. Nifty gave 42% returns over the 3 year period.
| S.No | Name | P/E | 1Yr return % | 3Yrs return % |
|---|---|---|---|---|
| 1 | Nestle India | 73.88 | -16.05 | 6.38 |
| 2 | TCS | 21.26 | -32.78 | -1.22 |
| 3 | Infosys | 21.97 | -24.38 | 0.66 |
| 4 | ITC | 25.47 | -16.88 | 9.36 |
| 5 | Pidilite Inds. | 67.82 | -12.78 | 2.93 |
| 6 | Hind. Unilever | 55.21 | -15.79 | -2.52 |
| 7 | LTIMindtree | 32.5 | -15.94 | 4.98 |
| 8 | Asian Paints | 58.37 | -29.24 | -11.17 |
| 9 | Wipro | 18.67 | -11.54 | 6.73 |
| 10 | Godrej Consumer | 63.58 | -15.2 | 8.96 |
| 11 | Titan Company | 81.32 | -10.89 | 9.27 |
| 12 | Avenue Super. | 108.9 | -11.22 | 1.08 |
| 13 | Bajaj Finserv | 33.97 | 0.7 | 6.45 |
| 14 | Ambuja Cements | 32.18 | -11.33 | 2.92 |
| 15 | Adani Energy Sol | 43.7 | -13.71 | -35.77 |
| 16 | Reliance Industries | 24.75 | -10.05 | 7.97 |
| 17 | Adani Enterp. | 80.86 | -19.83 | -10.12 |
| 18 | Adani Green | 90.52 | -47.76 | -22.92 |
What to Watch Before You Buy?
➣ Forward P/E / PEG Ratio – Compare valuation in relation to expected growth.
➣ Earnings Momentum – Current and projected earnings growth (3–5 year outlook).
➣ Margin of Safety – Avoid overpaying; seek valuation leeway.
➣ Growth Sustainability – Can competitive advantages sustain growth, or is the company entering slower phases?
➣ Compare with Index – Ask: “Is my expected return materially better than just owning the Nifty or a broad large-cap fund at lower cost?”
Conclusion
A great company can earn your respect—but that doesn’t guarantee returns. Always evaluate how much you’re paying today and how much growth you’re getting tomorrow. If you enter at inflated valuations, your chance of strong returns diminishes—even for blue chips.
Do You Find This Interesting?
We’d Love to Hear from you-
DISCLAIMER: Investment in securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Full disclaimer: https://bit.ly/naviadisclaimer.
