Markets
These 5 fundamentally strong stocks are near their 52-week lows. Should you buy?
Summary
- A stock’s 52-week high or low can be a useful indicator of its price momentum and potential value. However, investment decisions should be based on more than just these figures.
When determining the fair value of a stock, many believe that price history should be given the highest importance. This view operates on the premise that whatever you know is already known to the market and has been factored into the price.
However, it would be incorrect to assume that the price correctly reflects every development in a company. Markets are not always efficient, and investors can gain significantly by identifying anomalies.
For this reason, investors often track the 52-week low and high prices of a stock to gauge general market sentiment. These price points can become psychological support levels. For instance, if a stock falls to its 52-week low and then rebounds, investors may expect it to bounce back again if it approaches this low in the future.
Here are a few such stocks you could consider adding to your watch list.
#1 CCL Products (India)
CCL Products (India) Ltd is the world’s largest private-label manufacturer of instant coffee, with a capacity of 35,000 tonnes. It exports to over 90 countries, and exports contribute over 90% of its sales. The company is second only to Nestle in India’s coffee market.
It does not own coffee plantations but sources the raw material (green coffee) from various countries. It follows the policy of ‘sell first and then produce’, and prices its contracts and procures raw material accordingly. This allows it to maintain relatively stable gross margins despite the fluctuations in green coffee prices.
The company has strong client relationships, with some dating back decades. It has three main facilities for manufacturing instant coffee – one in Vietnam and two in India. It has another unit in Switzerland for value addition, which allows it access to European markets.
CCL Products is gradually focusing on the B2C segment as well. It’s increasing its presence in the domestic branded market with its signature 'Continental' brand and has tied up with retail chains for this.
From FY20 to FY24, sales increased at a compound annual growth rate (CAGR) of 20%, and net profits rose at a 10% CAGR. Return on equity (RoE) and return on capital employed (RoCE) averaged 29% and 20%, respectively, over the five-year period.
For FY24, revenue came in at ₹2,650 crore, up 28.1% YoY. Volumes for the year grew 14% YoY. Management reiterated a target of 18-20% with increased facilities and expansion into various markets. It plans to reinvest profits from the branded business in India to keep the growth rates at 30-40%.
Total debt is high at ₹1,600 crore, with the debt to equity ratio nearing 1. High coffee bean prices have led to sharp increases in working capital debt. This will rise or fall based on green coffee prices. The company is, however, working on optimising borrowings across its Vietnam, India and Switzerland entities to lower interest costs.
The stock price hit a 52-week low of ₹553 on 21 May 2024 and it currently trading at ₹588.
#2 Tata Technologies
Tata Technologies, a subsidiary of Tata Motors, is a global engineering services company that offers product development and digital solutions.
Its primary business is providing outsourced engineering services and digital transformation services to global manufacturing clients, helping them design better products.
The company complements its service offerings with its products and education businesses. In its products business, it resells third-party software applications. These are primarily product lifecycle management (PLM) software and solutions. It also provides value-added services such as consulting, implementation, systems integration, and support.
From FY20 to FY24, sales increased at a CAGR of 12%, and net profits at 14%. RoE and RoCE have averaged 21.9% and 28.3%, respectively.
In FY24 the company saw revenue increase 16%, driven by robust demand for software-defined vehicles in the automotive sector. Net income increased 9%. The company closed 12 large deals during the year. It also signed a strategic agreement with BMW to establish a JV in India to develop automotive software and digital technologies.
Tata Technologies is deploying GenAI solutions for customers in engineering, manufacturing, and the customer experience value chain.
Management is bullish on the aerospace and automotive sectors, and expects the growth momentum to continue in FY25. It is also focusing on leveraging technology advancements and customer demand to drive business growth.
The stock hit a 52-week low of ₹992 on 21 June 2024, and is currently trading at ₹1,010.
#3 ITC
ITC is a diversified conglomerate that operates in various sectors including FMCG, hotels, software, packaging, paperboards, and agriculture. It is the second most valuable FMCG company in India after Hindustan Unilever Limited (HUL).
The company's share price recently fell due to lower-than-expected quarterly results. It is looking to increase its market share in north India with its Yippee! Noodles, which is currently the second most popular noodle brand in India.
Coming to its financials, over the last 5 years, the revenue of the company has grown by a CAGR of 8%. The 5-year net profit of the company has grown by a CAGR of 10%.
Its five-year RoE stands at 25.7% and five-year RoCE at 34.1%. In FY24, ITC saw its topline decline by 0.7% but still managed to increase net income by 1% YoY.
The paper business experienced stress as dumping from China resulted in higher pulp and wood costs. The agri business faced challenges due to government policy interventions aimed at increasing food security and controlling inflation amid geopolitical tensions.
ITC's long-term growth outlook remains robust, though, with stable growth in cigarette volumes driven by differentiated and premium offerings. The upcoming demerger of the hotels business is expected to improve ITC's financial health and boost return ratios.
The stock hit a 52-week low of ₹403 on 21 February 2024, and is currently trading at ₹433.
#4 Asian Paints
Asian Paints is the largest home decor company in India and more than 80 years old.
It sells wall paints, wall coverings, waterproofing solutions, texture painting, wall stickers, mechanised tools, adhesives, modular kitchens, sanitaryware, lightings, soft furnishings, and uPVC windows. Its major brands include Asian Paints, Sleek, Berger, Weather Seal, Apco, Taubman, Kadisco and Scib.
From FY20 to FY24, sales increased at a CAGR of 13%, and net profits at 21%. RoE and RoCE averaged at 27.8% and 27.7%, respectively.
In FY24, revenue grew 2.9% YoY to ₹35,500 crore, while the net income grew 32.5% YoY to ₹5,500 crore. Asian Paints saw robust performance in Industrial business performing during the year, with Industrial sales clocked strong growth in both volume and value.
Management is optimistic about the future. It expects strong double-digit volume growth, driven by predictions of a good monsoon, the upcoming festival period, and a resurgence in rural markets. It plans to add around 10,000 retail points every year, while expanding its distribution network to 85-90 stores this year.
The stock hit a 52-week low of ₹2,710 on 9 May 2024, and is currently trading at ₹2,935.
#5 DreamFolks Services
DreamFolks Services Ltd is India's largest airport service aggregator platform. It facilitates an enhanced airport experience for passengers through a technology-driven platform and is a market leader in India’s airport lounge aggregation industry, with a 95% market share.
DreamFolks facilitates access to the following airport-related services: lounges, food and beverage, spa & wellness, meet and assist, airport transfer, transit hotels/nap room access, golf games & lessons, visa services, and e-sims.
It has an asset-light business model. It integrates global card networks operating in India, credit card and debit card issuers, and airlines with various airport lounge operators and other airport-related service providers on its platform.
It has partnerships with all five card networks in India (Visa, MasterCard, Diners/Discover, and RuPay) and key clients such as ICICI Bank, Axis Bank, Kotak Mahindra Bank, HDFC Bank, and SBI Card.
It also collaborates with major corporations including Indigo, Go Airlines, Air Asia, Vodafone Idea, Jet Privilege, Hettich India, Easy Trip Planners, and Mahindra Holidays to increase its customer base.
From FY20 to FY24, sales grew at a CAGR of 36% and net profits at 35%. RoE and RoCE averaged at 37% and 46.4%, respectively.
In FY24, the company brought in revenue of ₹1,130 crore, recording 47% growth. It has seen a significant increase in the adoption of digital tools such as web access and self-check-in kiosks, which are used by 10% of monthly passengers. Its railway lounge business saw robust 3.5x growth in FY24. Services other than Indian airport lounges contributed 6% of revenue in FY24 and the company expects this to hit 15-20% in the next four to five years.
The company expects to grow revenue at a 20% CAGR over the next three years by focusing on expanding its service portfolio, diversifying its client base, and entering new markets. It is also committed to maintaining gross margins in the range of 11-13%.
The stock hit a 52-week low of ₹450 on 25 September 2023, and is currently trading at ₹479.
Conclusion
A stock’s 52-week high or low can be a useful indicator of its price momentum and potential value. However, investment decisions should be based on more than just these figures.
Analysing the company's fundamentals is crucial for a true understanding of its prospects, regardless of the stock’s proximity to its 52-week high or low.
It’s important to approach investments with a cautious and well-informed strategy, which will allow you to navigate the complexities of the market successfully.
Happy investing!
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
