Multibagger! Penny stock Alok Industries surges 1900% in less than 5 years; should you buy?

Penny stock Alok Industries has posted multibagger returns in the last 4.5 years, since October 2019, rising from ₹1.4 to around ₹28 currently. This implies a return of 1900 percent for its investors.

An investment of ₹10,000 in this stock in March 2020 would have turned into ₹2 lakh now.

Alok Industries Limited manufactures and sells textile products in India and internationally. It offers apparel fabrics, corrugated pallets, cotton and blended yarns, knitted and woven garments, home textiles, polyester yarns, and embroidery products, as well as shopping bags and handkerchiefs. The company was incorporated in 1986 and is based in Mumbai, India.

The stock has surged 114 percent in the last 1 year and gained 31 percent in 2024 YTD.

Read here: Multibagger! Penny stock IFCI rises over 850% in 4 years, 278% in just 1 year

The stock has lost 3.5 percent in March so far, extending losses after an 11 decline jump in February. Meanwhile, it rallied 51.76 percent in January this year.

Currently trading at ₹28, the stock is over 28 percent away from its 52-week high of ₹39.05, hit on January 9, 2024. Meanwhile, it has rallied 156 percent from its 52-week low of ₹10.90, hit on March 28, 2023.

The significant upward trajectory highlights the strong market enthusiasm and positive sentiment towards the stock, reflecting a historic achievement for the company amidst the prevailing market conditions.

Earnings

In the December quarter (Q3FY24), the company posted a net loss of ₹215.5 crore as against a loss of ₹241.43 crore in the same quarter last year. Meanwhile, its revenue in the quarter under review declined over 26 percent to ₹1,217 crore from ₹1,654 crore in the previous quarter this financial year.

Read here: Multibagger penny stock acquires new company after issuance of 4:1 bonus shares

Brokerage view

According to ICICI Direct, the company has a rising net cash flow and cash from operating activity. It is also effectively able to generate net cash - net cash flow has improved in the last 2 years and at the same time it is a firm with zero promoter pledge, noted the brokerage.

Meanwhile, its weaknesses, as per the brokerage are -

- Degrowth in revenue and profit

- Declining revenue every quarter for the past 4 quarters

- Low Piotroski Score: Companies with weak financials

Penny stocks, often priced under ₹10 in India, are known for their low price and speculative nature, typically representing shares of small companies traded at low volumes. While some investors are attracted to their affordability, it's vital to understand the associated risks.

Read here: ₹19 to ₹246: Penny stock RVNL turns multibagger. Rises 1150% in five years

These stocks are notorious for their high volatility, making them susceptible to pump-and-dump schemes, liquidity challenges, and potential stock manipulation. Despite the allure of potential growth opportunities, investing in penny stocks is not without substantial risk.

Despite these risks, some investors view penny shares as a chance to tap into the growth potential of small companies. However, it's essential to approach such investments with caution, conducting thorough research and seeking guidance from financial advisors before diving in.

Disclaimer: This story is for educational purposes only. Please speak to an investment advisor before making any investment decisions.