Hello Sir,
Hope you are doing well.
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 22nd Oct’24, 23 medium/long term stock recommendations are under coverage. Out of the same, 8 are both Positive rated and in the buy zone.
Recently, we also released a new report on Strong growth Chemical Stock available at < 1 time book value. You can get these 23 recommendations including the new one by signing up HERE
Coming back to turnaround opportunities, we believe one good way to screen for such stocks is as follows:
Look for Preferential allotment of warrants/shares 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 – Ganesh Housing Corporation
- From FY 17 to FY 21, the company was going through a downcycle wherein its sales dropped from Rs 401 crore in FY 17 to Rs 168 crore in FY 21 and PAT dropped from Rs 75 crore in FY 17 to Rs 105 crore loss in FY 21
- Stock price followed a similar downtrend as it peaked around 180 odd levels in Jan’18 and corrected to lows of 20 odd levels in Mar’20
- Post Mar’20, the stock started recovering and was trading around 50-60 range in Mar’21
- As the company was going through one of its worst phase business wise, something interesting happened. On 30th Mar’21, the company informed the exchanges that it will hold a board meeting on 2nd Apr’21 to consider the proposal for raising funds
- On 2nd Apr’21, the board approved issue of 24.6 lakh shares at Rs 58/- per share to the Promoters
- In Apr’21, the stock was still trading around 60-70 odd levels
- Another interesting development happened in May’21
- On 31st May’21, the board approved amalgamation of 3 promoter group companies in Ganesh Housing
- Post allotment of 24.6 lakh shares and amalgamation of 3 promoter companies, the promoter holding in Ganesh Housing increased from 54.36% in Mar’21 to 73.06% in Mar’22
- What’s interesting is that while the company reported losses in FY 21, the performance improved significantly in FY 22 with more than 100% increase in sales and Rs 71 crore PAT which was close to the previous high of Rs 75 crore in FY 17
- FY 23, the company reported ~ 60% jump in sales, 88% jump in EBITDA and 147% jump in PBT
- FY 24, the company reported ~ 44% jump in sales, 147% jump in EBITDA and 158% jump in PBT
- Currently, the stock is trading around 940 odd levels and recorded a high of around 1,090 in Jul’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.
Best Regards,
Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.
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