Fundamentally Strong Penny Stocks
Created on 27 Jun 2022
Wraps up in 6 Min
Read by 23.6k people
Updated on 01 Sep 2022
Very high and mighty of you to want to support "small businesses". However, your money is better spent on your friend's "galla" or Instagram small businesses.
Penny stocks, as the name implies, are the stocks accessible at low prices, have a low market capitalization, and are loved by aggressive investors for the belief that these stocks can provide huge returns in a short period of time. However, they are scrips that are not so easy to find. Furthermore, a fact that very few people realise, is that these stocks are beneficial not just for short-term investment.
In fact, there are penny stocks with strong fundamentals that can be included in your long-term investment portfolio. Data from Business Standard shows that between June 2020 and December 2021, 102 low-priced penny stocks have returned more than 1000%, with 10 stocks returning more than 5000 percent.
Sounds like the best way to invest in stocks. Doesn’t it?
What are Fundamentally Strong Penny Stocks?
Fundamentally strong penny stocks are a mixture of two different ideas. Fundamentally strong stocks belong to companies that have commendable financials as a result of consistent performance. However, these shares are usually very costly as the financials of the company attract a lot of demand for the same, causing an increase in the price of the shares in concern.
Penny stocks usually are the opposite of fundamentally strong shares that suffer low prices due to lack of demand by investors. This lack of demand can be for a few reasons like, weak financials, low market capitalisation and more.
Finding a combination of shares that satisfies both of these requirements is a bit of a tough find. Fortunately for you, we have pulled down a list of penny stocks with good fundamentals such as steady revenues, consistent profit growth over time, a low debt-to-equity ratio, as well as those that pay dividends. Check the list for such penny stocks that may get you the best out of your investment.
1. Auro Laboratories
Auro Laboratories, established in 1989, manufactures APIs and specialises in diabetes therapy. On a contract basis, they also do custom API and intermediary manufacture. Chlorzoxazone, Metformin Hydrochloride, and Chlorphenamine Maleate are a few of their most important APIs. Metformin Hydrochloride accounts for nearly 90% of the company's revenue.
The company only has one manufacturing unit in Tarapur, with a capacity of 500 tonnes. Germany, Egypt, Singapore, Malaysia, Brazil, South Africa, the UK, and Spain, are among the nations to which it exports its goods. In order to improve capacity, the company is currently undergoing expansion plans around INR 12.5 crore.
The market capitalization of the company is INR 51 crores, and its shares are now trading at INR 82. Revenues have steadily climbed from INR 35 crores in 2018 to INR 54 crores in 2021.
It has averaged a 26.7% net profit increase over the last three years. The company has a high promoter ownership of 51.99% and no pledged shares, as well as a low debt-to-equity ratio of 0.11.
With a current ratio of 3.08, it is a smart investment. In comparison to the industry's PE of 21, its shares trade at a low PE of 17.99.
This could definitely be one of the best penny stocks to buy in 2022.
Source: Auro Laboratories on Ticker
2. Ashapuri Gold Ornament Ltd.
Ashapuri Gold Ornament Ltd. was founded in 2008 and specialises in wholesale jewellery trading. They sell ornaments made of 22-karat gold. Toda sets, Choker sets, Saloya, Pota jewellery, bracelets, and other antique jewellery are some of the most popular among the company's offerings. What's fascinating here, however, are their clients.
Ashapuri Golds serves customers ranging from the high-end to the mid-market value segment. Malabar Gold, Titan, and other companies are among their clients.
The company's market capitalization is approximately 104 crores, and its shares are currently trading at INR 42. Revenues have steadily climbed from INR 37 crores in 2018 to INR 118 crores in 2021.
Its net profit increase has averaged 226.95% over the last three years. The company has strong promoter ownership of 62.17% and no pledged shares, as well as no debt. It has a current ratio of 27.28.
This is another best penny stock with Good fundamentals, having the eye of all big investors.
Source: Ashapuri Gold Ornament Ltd. on Ticker
3. International Conveyors Limited
International Conveyors Limited is into manufacturing and selling PVC conveyor belts. The belts they make are usually put to use in underground mines to transport potassium, cement, and coal.
In India, it operates two manufacturing plants with a total installed capacity of 11.25 lakh metres.
Export of belts accounts for the majority of the company's revenue. Within India, its major clients include Coal India, Shree Cement, and Tata Steel. And, internationally, its major clients include BeltTech, Mosaic and Rosebud.
During the last three years, the company's revenues increased at a CAGR of 50.8%. Revenues increased by 82.06% in the fiscal year 2020-2021, owing primarily to increased export orders.
Profits have increased as a result of a strong order book and operational efficiency. In the last three years, profits increased at a CAGR of 83.31%.
Over the last three years, the company has lowered its debt to INR 48.88 crore. With low debt, the liquidity of the company has improved, increasing the chances of continuous dividend payouts.
Experienced promoters, lower domestic market competition, a reputable client portfolio, and a stable order book are just a few of the primary factors driving its success.
The business's promoters owned 65.97% of the corporation as of September 2021, with no shares pledged.
Source: International Conveyors Limited on Ticker
4. NACL Industries Ltd.
NACL Industries is a well-known agrochemical manufacturer. It produces active components for agrochemicals for all main crops.
Although the company exports its products to over 30 countries, the domestic market accounts for the majority of its revenue.
The company's reputable client base is one of its primary assets. Syngenta Asia Pacific Pte, Nissan Chemical Industries, and Dupont India are among their key clients.
In the last three years, the company's revenues expanded at a CAGR of 12.1%, owing to strong volume growth.
Its profits increased by more than 3X in the fiscal year 2021, reaching Rs. 50.29 crore from Rs. 15.77 crore the previous year.
The company's three-year average dividend payment ratio is 9.3%, with the possibility of it increasing as cash accruals improve.
Its debt-to-equity ratio has remained below 0.48x, reflecting a minimal financial risk profile.
The company's primary strengths include a diverse product portfolio, a good supply chain, a reputable client base, a broad regional presence, and a strong financial profile.
The strong success of the corporation is reflected in its stock price.
Source: NACL Industries Ltd. on Ticker
5. Piccadily Agro Industries
Sugar and liquor are two of the company's main products of Piccadily Agro. The enterprise has a sugar production capacity of 5,000 tonnes per day (TCD) and a liquor production capacity of 90-kilolitres per day (KLPD).
At its Haryana plant, it also boasts a 6 megawatt (MW) in-house cogeneration power plant. The Indian government's sugar export programme resulted in revenue growth of 22.5% in the fiscal year 2021, with a three-year CAGR of 13.54%.
Its net profit increased at a CAGR of 56.7% over the last three years, reaching Rs 17.6 crore in the financial year 2021, up from Rs 13.1 crore the previous year.
With an average dividend payout ratio of 13.7% over the last three years, the company has been steadily paying dividends.
Piccadily Agro has a strong financial profile thanks to its integrated operations, which include cane crushing, distillation, and power generation. The sugar industry's cyclicality is countered by its liquor business, which provides cash flow.
The company's stock has more than doubled in value in the last year.
Source: Piccadily Agro Industries on Ticker
The Bottom Line
While investing in penny stocks can offer huge returns, personally, I feel that it may sometimes result in huge losses as well. Therefore, my advice for all investors is to keep a few things in mind while investing in penny stocks. You, as an investor should check if the company has a strong balance sheet. A healthy financial profile means good prospects to grow. Next, you should pay attention to future growth opportunities. Another thing to keep in mind while buying penny stocks is to check if government policies are favourable.
Finally, your perusal is required to check the feasibility of the business. The more viable the business, the longer will be its existence. While Investing in penny stocks is no rocket science, it requires practicing caution. So just keep the discussed points in mind and start investing.
To learn more about how to invest in penny stocks, check out this course for beginners, based on Fundamental Analysis.
*Disclaimer: The stock(s) discussed above aren't recommendations from Finology, they are only picked to make you understand the concept.
How was this article?
Like, comment or share.
Share your thoughts
We showed you ours, now you show us yours (opinions 😉)
Why not start a conversation?
Looks like nobody has said anything yet. Would you take this as an opportunity to start a discussion or a chat fight may be.
More titbits on the go
Top 5 Small Cap Stocks in India
06 Aug 2021
Top 5 Undervalued Stocks in India
17 Jul 2021
The reality of ‘Too Big to Fail’ stocks
26 Jun 2021
Decoding Income Statement
13 Jan 2023