After giving over 40000% return in past 10 years, this stock is ready for some consolidation; do you own it?

Investors are gearing up for a tough summer on the back of a hotter forecast for the season. But they would be looking to make cool returns from seasonal stocks such as those of air conditioner and cooler manufacturers.

One brokerage house is cautious of one such stock on the back of steep valuations. In fact, its target price and a ‘sell call’ implies a downside of over 24 percent.

The stock in focus here is Symphony, which has had a stellar run in the last one year, gaining around 23 percent.

Brokerage Anand Rathi has taken a contrarian view to that of the Street's and has a sell call on the stock, with a target of Rs 1,475, a downside of over 24 percent to its April 13 closing price of Rs 1,831. It has cited premium valuations of around 44 times FY20 PE as the main reason for this rating.

Other than that, Anand Rathi actually highlighted positive cues for the stock such as revenue drives due to new launches, strong balance sheet and sustenance of growth momentum.

"While we like Symphony for its leading position in air coolers and the best return ratios of its peers, we recommend a 'sell' on the stock due to the pricy valuation. Our new price target is Rs 1,475 (35x FY20e P/E),” Anand Rathi said in a report.

Among key risks, an upswing in industrial demand and uneven summers are seen as issues.

Meanwhile, IIFL’s Sanjiv Bhasin recommends two other players in the sector.

"While we do cover Symphony, the preferred picks are Voltas and Havells. After the acquisition of Lloyds, Havells could have a dominant market share. Voltas also enjoys the benefit of oil being at USD 70. Its Middle East engineering and cooling towers are very prospective businesses which they have and that adds to the valuation. In case of Symphony, valuation discomfort is there as this is a seasonal business. So, in that context, Symphony could be an underperformer,” Bhasin, Executive Vice-President, Markets, at IIFL told Moneycontrol.

Interestingly, a look at the June quarter performance of all such companies, which consists of summer months’ sales, shows that the stock has been an underperformer during the corresponding quarter in the past three years.

For the quarter ended June 2017, Symphony lost 10 percent, while in 2015, it fell close to 20 percent. Only during the June 2016 quarter did the stock rise 4 percent.

On the other hand, Hitachi and Voltas have been consistent performers during the same quarter in the past three years. Hitachi, in fact, rose by as much as 19 percent in June 2016, while Voltas rose 18 percent as well.

HDFC Securities recently initiated coverage on Symphony with a 'buy' rating on it, stating that rising demand for cooling products, driven by growing disposable incomes, cheaper financing options and increasing up-country penetration of electricity, large unorganised air cooler market, consistent product innovation, and growing distribution reach (40,000 dealers targeted) have all worked well for the stock.