Multibagger penny stock: Jhaveri Credits surges 18642% in just 4 years; should you buy?

Jhaveri Credits and Capital, once considered a penny stock, has emerged as a standout success story, delivering exceptional returns to its investors over both the long term and recent periods, showcasing phenomenal performance.

In the last four years alone, Jhaveri's stock price has surged dramatically by an astounding 18642 percent, skyrocketing from ₹1.96 in July 2020 to its current value of ₹367.35. This remarkable growth underscores Jhaveri's consistent value appreciation, solidifying its position as a highly lucrative investment opportunity within the penny stock segment.

Over the past three years as well, the stock has witnessed impressive gains, climbing by 6728 percent from ₹5.38 in July 2021. Recent performances continue to underscore Jhaveri's stellar track record, with a notable 313 percent increase over the past year. In 2024 year-to-date, the stock has shown resilience with a positive gain of over 31 percent, despite experiencing losses in four out of seven months.

July marked a particularly strong rebound, with the stock surging nearly 8 percent, reversing losses from the previous four months. The stock shed around 4 percent in June, 2.6 percent in May, 23 percent in April and over 5 percent in March. Earlier in the year, February saw a significant rally of 21 percent, following a massive 47 percent surge in January.

While currently trading over 30 percent below its record high of ₹527.30 achieved on March 2, 2024, Jhaveri Credits and Capital has still soared 305 percent from its 52-week low of ₹90.70 recorded on July 24, 2023. This remarkable performance highlights Jhaveri's ability to deliver substantial returns and maintain investor confidence amid market fluctuations.

Despite its exceptional performance, it's essential to highlight that the stock is currently under ESM: Stage 1 and has recently (on July 10) received a show cause notice from market regulator Sebi.

What is ESM?

The Enhanced Surveillance Measure (ESM) is a regulatory framework implemented by the National Stock Exchange (NSE) in India. It aims to enhance monitoring and surveillance of listed companies to ensure investor protection and market integrity.

Under Stage I, the trading of the securities is settled through a trade-for-trade mechanism with a price band of 5 percent, or 2 percent.

About the Firm

Jhaveri Credits and Capital Limited engages in the commodity broking business in India. It provides share broking activities in cash, derivatives, and currency; and other services, such as mutual fund, insurance distribution, and agricultural activities. The company is also involved in financing, and investment and broking advisory business. Jhaveri Credits and Capital was incorporated in 1993 and is based in Vadodara, India.

Earnings

In the March quarter (Q4FY24), Jhaveri reported a standalone net profit of ₹35 lakh, declining massively from ₹93 lakh in the same period last year and ₹105.5 lakh in the previous quarter (December 2023).

Meanwhile, total revenue for the quarter stood at ₹487 lakh, a fall from ₹1,142.7 lakh a year earlier but a multifold 233 percent surge from ₹146 lakh in the December quarter.

For the fiscal year 2023-24, the company achieved a standalone net profit of ₹161 lakh, a substantial jump from ₹78.5 lakh in FY23. Meanwhile, revenue for FY24 soared 124 percent to ₹2,641.7 lakh as compared to ₹1,180.3 lakh in the previous financial year.

Brokerage Views

ICICI Direct, a domestic brokerage, has pointed out several strengths of Jhaveri Credits and Capital. It emphasised that the company has shown robust annual EPS (earnings per share) growth and has consistently increased its revenue for the past three quarters. Moreover, ICICI highlighted the company's low debt levels as another significant positive factor.

Meanwhile, its weaknesses, as per the brokerage, are:

- Promoter holding decreased by more than -2 percent QoQ.

- Poor cash generated from core business - Declining Cash Flow from Operations for last 2 years

- Degrowth in Quarterly Revenue and Profit in Recent Results(YoY)

Investing in penny stocks offers the allure of high potential returns at relatively low entry costs, but it's a terrain fraught with substantial risks. One of the primary challenges is liquidity; penny stocks often suffer from limited trading volumes compared to larger, more established companies. This illiquidity can amplify price swings, making them highly volatile investments. Moreover, penny stocks may operate under less stringent financial reporting standards and regulatory oversight, creating opportunities for market manipulation and fraudulent activities. These factors combine to heighten the inherent risk associated with trading in penny stocks.

To navigate this volatile landscape prudently, investors must conduct thorough research and implement robust risk management strategies. Understanding the company's fundamentals, assessing its market position, and scrutinising its financial health are crucial steps. Additionally, maintaining a disciplined approach to investment and setting realistic expectations can help mitigate potential losses. By exercising diligence and caution, investors can better navigate the uncertainties of penny stocks, enhancing their ability to capitalise on opportunities while safeguarding their investments against undue risks.

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