Investment comes in many forms, but risk is paramount.

Baijiu, which many people have looked down upon, has been quietly developing. Today, it has unexpectedly risen by more than 3% overall, which should come as a surprise to many.

Is the baijiu industry, which has been declining for three years, about to turn around?

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Market perspectives on the baijiu industry

The baijiu industry has always been a contentious one, with two distinct factions: the bulls and the bears.

The bulls believe: The baijiu industry has an excellent business model, akin to a money-printing machine, and the culture of drinking baijiu is deeply ingrained in people's hearts. Brands like Maotai, Wuliangye, and Luzhou Laojiao have strong brand power and will continue to develop in the future.

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The bears, on the other hand, believe: Nowadays, no one drinks baijiu anymore, young people do not consume it, there is a severe oversupply of baijiu, production is decreasing year by year, the industry has reached an inflection point, and it is no longer viable.

Both the bulls and the bears on baijiu hold firm to their positions, each with their own arguments, and neither side is willing to concede.On July 29th, UBS Securities issued a statement saying: The buy ratings for baijiu such as Maotai, Wuliangye, and Luzhou Laojiao have been downgraded to neutral.

UBS Securities also expects that the compound annual growth rate of average earnings per share for the covered baijiu companies from 2023 to 2025 will slow down from 19% in the period from 2020 to 2023 to 8%.

As soon as this news came out, the market widely believed that UBS Securities also has a bearish view on baijiu, and the baijiu industry is about to change.

In response to this, relevant people in the investment circle said:

Baijiu has a long cycle attribute, and short-term fluctuations in stock prices will not change the long-term investment value of the company. The current valuation of baijiu stocks is far lower than the historical average, which instead provides an opportunity to lay out at a low price.

Data on the baijiu industry

The change chart of the annual output of the baijiu industry from 2017 to 2022 shows a clear downward trend year by year, proving that the baijiu industry is also experiencing a transformation process from quantity to quality.

Let's take a look at the net profit of the baijiu industry, which is increasing year by year. Even if the output is declining, it still cannot stop the strong money-making ability of baijiu companies.

This indicates that the baijiu industry has strong resilience, and the money-making ability of companies should not be underestimated.Even during the three years of the pandemic, it could not stop the advancement of the baijiu industry.

Let's take a look at the overall decline of the baijiu industry, which has been falling for four consecutive years. From the previous high of 21,663 points to the current 9,971 points, it has plummeted by 53.97%.

As the old saying goes, opportunities arise from declines.

The baijiu index has fallen for four years, while net profits have continued to rise for four years, creating value and investment opportunities from the decline.

Can the baijiu industry still be invested in?

The answer is yes.

As a consumer industry, the baijiu industry has a very high repurchase rate and belongs to the fast-moving consumer goods (FMCG) sector.

The consumer stickiness of baijiu users is very high, and baijiu has a high degree of differentiation, which can promote the continued development and existence of baijiu enterprises.

The average gross profit margin of baijiu enterprises is over 70%, the average return on equity (ROE) is as high as 20%, and the average compound annual growth rate is 15%. They are truly money-making machines, and the companies operate with light assets, demonstrating strong profitability.The current price-to-earnings ratio (P/E) of the baijiu industry has also reached a historical low (18.66 PE), which can be said to be very undervalued.

As for the future development forecast of baijiu, baijiu companies will still maintain their profitability, but in terms of growth rate, it will definitely not be as high as before and will slow down to an average annual growth rate of 10%.

In the current context of a sluggish economy and consumption downgrade, it is difficult for baijiu to have an outstanding performance, but it will definitely show strong resilience.

For baijiu companies, it is still necessary to maintain confidence and believe that they will have better development in the future.

As for the 3% surge in baijiu stocks today, is it the start of a reversal trend?

The author believes more that baijiu stock prices still need to be adjusted for a period of time before rising again.

However, the current position is undoubtedly the bottom area, and there is also very limited downward space, and smart people should see this as an opportunity.

SummaryThe life cycle of the white liquor industry is very long. It is believed that with the continuous recovery of the economy, the performance of white liquor will also become more and more outstanding.

If we look at the present from the perspective of the future, this is a good opportunity.

If you believe that the development of white liquor will continue in the future, then you should firmly say no to those who are bearish.

Of course, every issue is a matter of personal opinion and wisdom.

So, are you optimistic about the future of white liquor?

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