Case 032Investment evaluation and pitchesCore

Madhurima Confectionery trades at 45x earnings. Run a reverse DCF to find the growth the price already assumes, compare it with consensus, and decide whether it makes a long pitch.

Millennium ManagementNew York · 2024Point72central · 2025Balyasny Asset ManagementNew York · 2026BarclaysNew York · 2026Wellington ManagementHong Kong · 2022Wells Fargo SecuritiesCharlotte · 2025

The situation

Madhurima Confectionery makes chocolates and sweets. Its shares trade at Rs 1,800 on earnings per share of Rs 40, a P/E of 45. It earns a return on equity of 35% and you use a 12% cost of equity.

Consensus expects EPS to grow 15% a year for ten years. After that, you assume growth settles at 6% a year forever. The company reinvests only what its growth needs: the share of earnings retained is growth divided by ROE, and the rest is paid out.

Your task

What ten-year growth rate does Rs 1,800 imply, how does it compare with consensus, and would you pitch Madhurima long?

Quick check

On consensus growth of 15% for ten years, is Madhurima worth more or less than Rs 1,800?

Worked solution

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

30-second answerThe answer to give first

Rs 1,800 implies EPS growth of about 23.6% a year for ten years, against consensus of 15%. On consensus the shares are worth about Rs 1,028, so the market is already paying for far more growth than analysts forecast. That does not make a long pitch: to argue long you would need a reason to expect growth near 24% for a decade. Absent that view, the pitch fails.

Step 1Why start from the price instead of from a forecast?

Because the price is a forecast someone else has already made. A house listed at three times its neighbours' price tells you what the seller thinks the location is worth; your job is to decide whether you agree. A reverse DCFA discounted cash flow run backwards: fix the value at the market price and solve for the growth or margin the price requires. fixes the value at Rs 1,800 and solves for the growth that makes the model agree. The pitch then becomes a single question: do you believe that number?

Step 2How is the model set up?

Keep it to what the data supports. EPS grows at g for ten years. Each year the company retains g divided by 35% of its earnings to fund that growth and pays out the rest. After year 10 growth is 6%, so the payout rises to 1 less 6/35, about 83%, and the terminal value is that payout over the 12% cost of equity less 6%, about 13.8x next year's earnings. Discount everything at 12% and search for the g that returns Rs 1,800: it is 23.6%.

The relationship
1,800=∑t=11040(1+g)t (1−g/0.35)1.12t+40(1+g)10(1.06)(1−0.06/0.35)(0.12−0.06) 1.12101{,}800 = \sum_{t=1}^{10} \frac{40(1+g)^t\,(1 - g/0.35)}{1.12^t} + \frac{40(1+g)^{10}(1.06)(1 - 0.06/0.35)}{(0.12 - 0.06)\,1.12^{10}}
gthe ten-year EPS growth rate being solved for
1 - g/0.35the payout ratio: what is left after retaining enough to grow at g with a 35% ROE
0.06growth after year 10
0.12the cost of equity
What it says in wordsThe price equals the present value of ten years of dividends plus a terminal value, and only g = 23.6% makes the two sides match.
What growth does Rs 1,800 already assume? Value per share against 10-year growth01,0002,0003,0000%10%20%30%Growth in EPS for each of the next ten yearsMarket price Rs 1,800Consensus 15%: Rs 1,028Rs 772 short of the pricePriced in: 23.6% a yearfor ten years
Madhurima's value per share rises with assumed ten-year growth and crosses the Rs 1,800 price at 23.6% a year; at the 15% consensus, value is about Rs 1,028, Rs 772 below the price.
Step 3How robust is that gap?

Move the input you are least sure of, the cost of equity. At 11% the price implies 20.0% growth and at 13% it implies 27.0%; at every reasonable discount rate the market wants more than the 15% consensus. Another way to see it: at 15% growth, the high-growth phase would have to last about 23 years, not ten, before the price made sense.

Cost of equityTen-year growth priced inGap to 15% consensus
11%20.0%+5.0 points
12%23.6%+8.6 points
13%27.0%+12.0 points
Across costs of equity from 11% to 13%, Rs 1,800 needs ten-year growth of 20.0% to 27.0%, always well above the 15% consensus.
Step 4So is it a long pitch?

Not on these numbers. A long pitch needs a variant view: a reason the market is wrong in your favour. Here the market is already more optimistic than consensus. To pitch Madhurima long you would need evidence that EPS can compound near 24% for a decade, such as a new category, pricing power or a margin step-up that analysts have missed. Without that, the honest conclusion is that the business is excellent and the price already says so. A good interviewer will respect that answer more than a forced long.

Where candidates lose it

The common loss is pitching the business instead of the stock: 35% ROE, strong brands, long runway, therefore buy. All of that can be true and the shares can still be priced for more than it delivers.

The second is running a forward DCF with your own growth, getting a value, and never asking what the price implies. Without the implied growth you cannot say what you believe that the market does not.

What the interviewer asks next

  • What if ROE fell to 25%? Does the implied growth rise or fall, and why?
  • Which single operating metric would you track to test whether 24% growth is possible?
  • How would you build the short case on Madhurima, and what would make you wrong?

Asked at Millennium Management, Investment Research, New York, 2024 (Wall Street Oasis): First round behavorial with a current Analyst, then a stock pitch case study
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Asked at Balyasny Asset Management, Equity Research, New York, 2026 (Wall Street Oasis): Had to do multiple case studies including take-home stock pitch as as well as several other names presented.
Asked at Barclays, Sales and Trading, New York, 2026 (Wall Street Oasis): 2 back-to-back interviews with VP and Director in Superday. Mostly market and behavioral, pitch a stock
Asked at Wellington Management, Generalist, Hong Kong, 2022 (Wall Street Oasis): First round - with head of HR department. CV based question and stock pitch question.
Asked at Wells Fargo Securities, Generalist, Charlotte, 2025 (Wall Street Oasis): Dived in depth on LBOs, Levered vs unlevered dcf, unexpected stock pitch (due to investment club on resume)

Company names and figures are illustrative.