Five solid small caps at 52-week lows. Time to take a close look?

Small-cap segment is largely booming, but some individual small-cap stocks are hitting 52-week lows. (Image: Pixabay)
Small-cap segment is largely booming, but some individual small-cap stocks are hitting 52-week lows. (Image: Pixabay)

Summary

Despite the positive sentiment around small cap stocks in the market, these five small caps are trading near their yearly lows. Find out why

Small-cap stocks are making headlines again, but not for the reasons they were in March. Back then, comments from markets regulator, the Securities and Exchange Board of India (Sebi), had triggered a sell-off. Now, the narrative has flipped.

Small-cap indices are on a tear, hitting record highs seemingly every other day. This comes after two months of underperformance compared to the broader market.

In April, the small-cap index surged a staggering 11.4%, leaving the benchmark Nifty in the dust, which rose only 1.2%. Even though the Nifty itself is at record highs, the small-cap rally is a different beast altogether.

All three indices hit new peaks on 30 April 2024. However, there's a twist. While the overall segment is booming, some individual small-cap stocks are hitting 52-week lows. So why are these five small-caps bucking the trend?

#1 TCI Express

First on the list is TCI Express. The company offers distribution services through various modes of transport. TCI Express caters to a diversified customer base, including automotive, pharmaceutical, textiles, engineering, and telecom industries.

With a hub-and-spoke infrastructure of 900-plus owned centres across India, covering over 95% of the pin codes, the company offers surface, domestic and international air, and e-commerce express services.

Shares of TCI Express hit their 52-week low of 997 on 14 March 2024 and are currently trading just 8% above their all-time lows. This decline is attributed to subdued financial results.

In the March 2024 quarter, TCI Express reported a 2.9% year-on-year (YoY) decline in total income to 3.2 billion, while profits fell 17.8% to 315.9 million due to a 7% increase in selling, general, and administrative expenses.

Additionally, foreign institutional investors' (FII) stake in the company fell to 2.4% from 2.9% in the December 2023 quarter.

Looking ahead, TCI Express is prioritizing investment in technology and automation to streamline operations and enhance customer service, and expanding its branch network to improve accessibility for customers.

#2 Goodyear India

Second on the list is Goodyear India, which manufactures and trades tires and tubes mainly for the automotive industry, serving major companies like Escorts and Mahindra Tractor.

Shares of Goodyear hit their 52-week low of 1,100 on 28 March 2024 and are trading just 9.8% above this low. The decline is attributed to a recent spike in the prices of key commodities like rubber and crude oil, essential raw materials for tire production.

Additionally, the company reported weak Q3 results in the farm segment, impacting revenue and profitability.

With expectations of further increases in raw material prices, Goodyear's Q4 performance might be adversely affected, contributing to the downward pressure on the stock.

Looking ahead, Goodyear India is focusing on developing and launching new products for the luxury and SUV segments of the Indian passenger car market, aiming to capture a larger market share while maintaining its leadership position in the farm segment.

#3 Transpek Industries

Third on the list is Transpek Industries, a chemical company manufacturing and exporting a range of chemicals. The company caters to diverse industries, including textiles, pharmaceuticals, agrochemicals, and advanced polymers. Known for its expertise in chlorinated chemistry, Transpek's products find applications in electric vehicles (EV) and defence.

Shares of Transpek hit their 52-week low of 1,615 on 20 November 2023, currently trading 8.9% above this low. The decline is due to back-to-back reductions in FII stake over the last two quarters. FIIs now hold 0.1% in the company, down from 1.9% in the September 2023 quarter.

Additionally, in the December 2023 quarter, the company reported a 24.5% YoY decline in revenue to 1.5 billion, while net profit fell 43.1% to 140.8 million.

Going forward, Transpek is expanding its global presence, forming partnerships with new clients in South America, Eurasia, and Japan.

It is also developing new products in chlorine and non-chlorine chemistry, with a capex of 300 million to replace an old plant to accommodate new products.

#4 Satia Industries

Fourth on the list is Satia Industries, a leading wood and agro-based paper manufacturer in India. The company supplies paper directly to various state boards, accounting for over 40% of its business, enjoying a 10-12% market share in state orders.

Shares of Satia hit their 52-week low of 104 on 13 March 2024, currently trading 10% above this low. This can be attributed to FII stake reduction, now standing at 2.1% compared to 2.9% in the December 2023 quarter.

Poor Q3 results, with an 11.5% YoY fall in revenue to 4.3 billion and a 38.8% YoY drop in net profit to 396.4 million, have also weighed on the stock.

Looking ahead, Satia plans to modernize its existing plants and machinery and set up a new paper machine to potentially double its production capacity.

#5 Rajratan Global Wire

Last on the list is Rajratan Global Wire, a manufacturer of bead wire and steel wire used in automobile, aircraft, and earth-moving equipment tires. The company has operations in India and Thailand, with a 50% market share in India’s tyre bead wire segment.

Shares of Rajratan hit their 52-week low of 579 on 28 March 2024, currently trading 2.4% above this low.

This decline is due to weak FY24 results, with flat revenue growth at 8.9 billion and a net profit of 718.3 million, down 28.5% YoY.

Mutual funds have also reduced their holdings to 7.6% from 8.3% in the December 2023 quarter. Looking ahead, the company targets a production of 125,000 tonnes by FY25, with the new Chennai facility expected to contribute significantly.

Should You Invest in Stocks Trading at 52-Week Lows?

Investing in stocks trading at their 52-week lows can be tempting, assuming potential rebounds and good returns. However, it’s crucial to note that a low trading price doesn’t necessarily mean a good buy.

Factors such as poor management, declining revenues, or unfavourable regulatory changes could be at play. Therefore, investors should exercise caution and avoid making hasty decisions based solely on a stock’s price level. Thorough research and analysis of the company’s financials, industry trends, and economic conditions are essential before investing in these stocks.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

 

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