Palm Jewels is a jewelry designer and wholesaler – in the sense that it designs and manufactures chains, bracelets and necklaces in bulk and sells these to other jewelry stores. Jewelry making is outsourced to job workers.
This is a very fragile moat because if jewelry shops decide to set up their design or job outsourcing department, orders will shrink for Palm Jewels.
A very very weak moat.
NEGATIVE CASH FLOWS
Would you buy a stock at Rs 30 when the operational cash flows are either negative or insignificant?
Wouldn’t you expect a jewelry wholesaler to report positive operational cash flows?
IN HOUSE COMPETITION
A company tries to create a moat around itself by building an impregnable business model. However, Palm Jewels group companies compete with it.
BUMP UP IN EQUITY AND RESERVES
Check the equity and reserves as on 2017 and 2018 and take in the numbers and the sudden jump, which is due to issuing shares at a premium.
By now, it is safe to say that this issue is an AVOID.