Case 076Stock pitchHard

Your case competition pitch went long a retailer at Rs 400. A year later it trades at Rs 280 on lower earnings. Split the fall into the earnings miss and the de-rating, and say what you would do now.

Point72New York · 2026

The situation

In last year's case competition you pitched Corvasta Retail, a value fashion chain, as a long at Rs 400. That was 25x your FY26 EPS estimate of Rs 16. The thesis rested on two engines: about 60 new stores a year and same-store sales growth near 10%, which together would carry EPS up about 20% a year.

A year on, Corvasta trades at Rs 280. FY26 EPS came in at Rs 14.5, not Rs 16, because same-store sales slowed to 1% and heavy discounting cut the gross margin by 1.5 points. New store openings ran to plan. The interviewer has your old deck open and asks what happened.

Your task

How much of the 30% fall came from earnings and how much from the multiple, and what would you do with the position today?

Quick check

Before you calculate: which part of the fall is bigger?

Worked solution

Try it on paper, then open one step at a time.

30-second answerThe answer to give first

About Rs 37.5 of the Rs 120 fall came from the earnings miss and Rs 82.5 from the multiple. At the old 25x, EPS of Rs 14.5 is worth Rs 362.5, a 9.4% fall. The market then paid only 19.3x, taking the price to Rs 280. Most of the loss is the market deciding the growth engine had stalled. The decision today is a fresh one at Rs 280, not a defence of Rs 400.

Step 1How do you split a price move into its two parts?

Price is earnings per share times the multiple, so every price move is some mix of the two. Think of a flat bought for its rent: its price can fall because the rent fell, or because buyers now pay fewer years of rent for the same flat. Change one piece at a time: first move EPS at the old multiple, then move the multiple at the new EPS. At 25x, the new EPS of Rs 14.5 is worth Rs 362.5. That Rs 37.5 step is the earnings miss. The remaining Rs 82.5, from Rs 362.5 to Rs 280, is the market paying 19.3x instead of 25x, a de-ratingA fall in the multiple investors pay for each rupee of earnings, independent of any change in the earnings themselves..

Corvasta's price fell from Rs 400 to Rs 280: Rs 37.5 came from EPS dropping from Rs 16 to Rs 14.5 at the old 25x, and Rs 82.5 came from the multiple falling to 19.3x, so the de-rating did about 69% of the damage.

The relationship

\frac{280}{400} = \frac{14.5}{16} \times \frac{19.31}{25} = 0.906 \times 0.772 = 0.700

280 / 400	the price ratio, a 30% fall
14.5 / 16	the EPS ratio, a 9.4% fall
19.31 / 25	the P/E ratio, a 22.8% fall

What it says in wordsThe price ratio equals the EPS ratio times the multiple ratio, so a 9.4% earnings fall and a 22.8% de-rating compound to a 30% loss.

Notice the two percentages do not add up to 30. The pieces multiply, so 9.4% and 22.8% combine to 30.0%, not 32.2%. The order you take them in also shifts the rupee split: move the multiple first and the de-rating takes Rs 91 while earnings take Rs 29. Either way the multiple did two thirds to three quarters of the damage, and that is the finding to say out loud.

Step 2Why did the market stop paying 25x?

A multiple is the price of expected growth. 25x was the market agreeing that EPS would compound near 20% a year. When same-store salesSales growth from stores open for at least a year, which strips out the effect of new openings and shows whether existing stores are selling more. slowed to 1%, the market stopped believing in the engine, not just in one year's number. New stores opened on plan, so the slowdown sits in the existing estate: either new stores are pulling customers from old ones nearby, or the format is losing its shoppers. A one-year miss moves EPS by a few percent; a doubt about the engine moves the multiple, and the multiple is applied to every future year at once.

Plotted as price against EPS, Corvasta slid down the 25x ray from Rs 400 to Rs 362.5 as earnings fell, then dropped straight down to the 19.3x ray at Rs 280, and that vertical drop is more than twice the slide along the ray.

Step 3What do you do with the position now?

Start from Rs 280 and ask the pitch question again as if you had never owned the stock. It is the same discipline as a family deciding whether to keep a car: what they paid for it five years ago does not change what it is worth to them today. The price you paid carries no information about the value; it only records your mistake. The test is which reading of the slowdown is right. If the discounting cleared excess stock and same-store sales recover toward 8% to 10%, EPS can get back to Rs 16 and beyond, and 19.3x a depressed year is not demanding. If new stores are cannibalising old ones, Corvasta is closer to a 10% grower, and slower retailers of that kind usually trade in the high teens, so Rs 280 is already about fair.

Reading of the slowdown	Evidence you would see	EPS path	What 19.3x means
Stock clearance, engine intact	Mature-store sales recover; inventory days back to normal	Back to Rs 16 within a year	Undemanding on a depressed year
Cannibalisation by new stores	Older stores near new openings lose sales; footfall down	Grows about 10% from Rs 14.5	Roughly fair; no margin for error
Format losing shoppers	Footfall and ticket size both falling across the estate	Flat or down	Still expensive

Each reading of the same-store slowdown implies a different EPS path, so the decision on Corvasta turns on mature-store data rather than on the Rs 400 entry price.

Close with the evidence that decides it: same-store sales for stores older than two years against the newest ones, footfall against ticket size, and inventory days after the clearance. A strong close owns the error, sizes it and names the test: the miss was mine, most of the damage came from the multiple, and I would stay involved only if mature-store data shows the engine restarting within two quarters; otherwise I would exit and keep the lesson.

Where candidates lose it

Candidates defend the old pitch. They argue the market is wrong at Rs 280 because it was right at Rs 400, which tells the interviewer you anchor on your entry price. The question tests whether you can separate what you got wrong from what the market changed its mind about.

The second loss is blaming it all on the earnings miss. EPS fell 9%; the stock fell 30%. If you cannot say that most of the damage came from the multiple, you have not shown you understand why growth stocks fall harder than their earnings.

What the interviewer asks next

If EPS recovers to Rs 16 and the multiple stays at 19.3x, where does the stock sit, and is that enough?
What single data point would make you exit tomorrow?
How would you size the position differently if you pitched it again?
Your Rs 16 was above consensus of Rs 15. What does that say about the entry?

Asked at Point72, Investment Research, New York, 2026 (Wall Street Oasis): Asked about the case competition and what happened to the stock

Company names and figures are illustrative.