A market leader in two-wheelers, Hero Honda has outpaced rivals with a 12 per cent sales growth in 2008-09, as against a flat growth of 3 per cent for the industry this year. Good growth in sub-125 cc segment and a strong foothold in the semi-urban and rural markets has helped Hero Honda weather uncertainties such as lower credit availability and a slowdown in urban purchases relatively well. 

However, with a 42 per cent gain over the past year (the Sensex declined 32 per cent in the same period), the stock has completely sidestepped the market meltdown and now trades at a sizeable valuation premium over the market. 
At the current market price of Rs.1147, stock price discounts the company’s trailing four quarters earnings by 17 times. Though Hero Honda may continue to deliver reasonable profit growth in the coming quarters, this premium valuation limits the scope for substantial upside in the stock. Investors can thus take advantage of this opportunity choose to book profits on the Hero Honda stock.