Everyone is looking for turnaround opportunities that can turn out to be multibaggers.
The question is – How does one screen for such stocks?
Before that: As on 10th Oct’24, 23 medium/long term stock recommendations are under coverage. Out of the same, 9 are both Positive rated and in the buy zone.
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Coming back to turnaround opportunities, we believe one good way to screen for such stocks is as follows:
Look for Preferential allotment of warrants to Promoters in companies in which there’s been a decent correction in stock price (40-50% or more) or going through a down phase
Let’s look at a case – Thomas Scott India
- From FY 15 to FY 21 company’s annual sales were range-bound between Rs 13-21 crore and it was reporting annual losses of around Rs 1-3 crore
- Stock price also corrected from highs of 21 odd levels in Aug’17 to lows of 3-4 odd levels in Mar’20
- On 6th Aug’21, the company announced that a meeting of Board of Directors will be held to evaluate fund raising by way of preferential issue to Promoters
- In Aug’21, the stock was trading in the range of 15-20 odd levels
- On 4th Sep’21, the Board decided to allot 54.25 lakh warrants to Promoters and Non-Promoters
- On 28th Sep’21, the Board informed about allotment of 31.5 lakh warrants to Promoters out of a total of 54.25 lakh warrants
- In Oct’21, the price per warrant was decided at Rs 19/- per warrant. The stock was still trading around 19 odd levels in Oct’21
- What’s interesting is that performance of the company for FY 22 saw an improvement with sales jumping by more than 50% to Rs 32 crore and the company reported profit for the first time in over 6-7 years
- Jun’22 quarter onwards, the operating performance improved significantly, and the stock also rose to highs of 65 odd levels in Apr’22
- For FY 23, the company reported ~ 100% jump in sales, 400% jump in EBITDA and 200% jump in PAT
- For FY 24, the company reported ~50% jump in sales, 160% jump in EBITDA and 200% jump in PAT
- Probably, the promoters were anticipating a turnaround in the business and thus opted for convertible warrants at Rs 19/- each
- Currently, the stock is trading around 220 odd levels and recorded a high of around 350 in Mar’24
There might be many cases where the business and the stock may not have done well, post allotment of warrants to promoters during low phase. However, the idea is, screening for such stocks can be a good starting point for further research and to catch the turnaround stage early.
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Disclaimer: This is not a recommendation to buy/sell any of the stocks mentioned above. The securities quoted are for illustration only and are not recommendatory.
Ekansh Mittal
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