Big gains come in small sizes, which is especially true for smallcap stocks which have outperformed benchmark indices by a wide margin in the last one year.
The S&P BSE Sensex rose 17 percent while the S&P BSE Smallcap Index rallied by about 30 percent in the same period.
Smallcap stocks which are always labelled as ‘high risk’ but give big returns when compared with largecaps. Choosing the right stocks matters when it comes to small companies and it they have earnings visibility then the rally is most likely to sustain.
We collated a list of companies which are trading at a high price to earnings ratio (P/E), which in some case is 10x its book value, has more than doubled its net profit in last one year and have given returns up to 710 percent in the same period.
High PE ratio is not an alarming sign in all the case because when high PE is accompanied by a rise in profits it means that Street is factoring a higher future growth, which makes these stocks somewhat safe.
Some of the companies which meet the above criteria include names like Indiabulls Ventures, Venky’s, Philips Carbon, Jindal Stainless, Atlanta, Prakash Industries, Indian Hume Pipe, Swan Energy, Bhansali Engineering, PNB Glitz, Dewan Housing etc. among others.
“Small cap stocks, in general, have been most sought after as the present phase of the market rally has been driven by domestic investors. Some of the companies mentioned in the table below have been driven by business specific revival,” Shashank Khade, Director and Chief Equity Advisor at Entrust Family Office Investment Advisors told Moneycontrol.
“Commodity price revival, gross margin positive changes, step-up in volumes have driven by earning and attracted investor interest. It is clear that the market is hungry for earnings growth which has been scarce,” he said.
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