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    Multibagger screener: 13 stocks trading below 5-year average PE. More steam left?

    Synopsis

    The PE of aerospace and defence player Zen Technologies, which makes military training live-range equipment and anti-drone systems, has fallen from an average of 225 to 76.6. HDFC Securities said that given a large order inflow and revenue visibility for the next few years, some more rerating is possible in the stock.

    Multibagger screener: 13 stocks trading below 5-year average PE. More steam left?Agencies
    With mid and smallcap indices outperforming headline index Nifty by a wide margin in FY23, investors are having a tough time looking for stocks with a decent margin of safety amid all the retail euphoria in the broader market. ETMarkets ran a screener to find 13 stocks that have given multibagger returns in FY24 and are still trading below their 5-year average PE levels.

    However, a stock trading below historical PE levels doesn't necessarily mean that it is poised to rally but it can be a good starting point to spot future winners.

    Tamil Nadu-based smallcap company SKM Egg Products, which runs one of the largest egg processing plants in Asia, has seen its share price rally over 253% in FY24 so far. The stock is still trading at a TTM PE of 11.6x against the historical average of 15.7x.

    Balu Forge Industries, which manufactures forged crankshafts and components, saw its stock rallying around 160% but PE being below 5-year average levels of 59x. In Q1 the company reported a revenue jump of 113% and PAT growth of 125% on a YoY basis.

    The PE of aerospace and defence player Zen Technologies, which makes military training live-range equipment and anti-drone systems, has fallen from an average of 225 to 76.6. HDFC Securities said that given a large order inflow and revenue visibility for the next few years, some more rerating is possible in the stock.

    "We feel investors can buy the stock in the Rs 710-730 band and add more on dips to the Rs 639-653 band (32.5x FY25E EPS) for the base target of Rs 795 (40x FY25E EPS) and bull case target of Rs 854 (43x FY25E EPS) over the next two to three quarters," the brokerage said.

    Others on the list include Birla Cable, Welspun Enterprises, Indraprastha Medical, PTC India Financial Service, Dhanlaxmi Bank, Rossell India, ITD Cementation, Neuland Laboratories, Tasty Bite Eatables and Kirloskar Brothers.

    Price-to-earnings (PE) multiple is one of the most widely used metrics in the market to find out whether the stock is undervalued, overvalued or fairly valued as it tells you how many years it will take for the company's earnings to cover its current price. However, investors must remember that PE multiples should not be used in isolation while picking a stock as investors must also consider other factors like growth outlook.

    What should investors do?
    Given the non-stop rally in the last 6 months that has triggered a 40% upside in Nifty Smallcap index, analysts say the broader market may see some time correction in the near term and flows will likely shift to largecaps.

    "At current valuations and the prevailing scenario of higher bond yields, rising crude prices, and the stronger dollar index, largecaps appear to provide more margin of safety than midcaps and smallcaps. Nonetheless, the long-term story of the broader Indian market continues to remain attractive," said Neeraj Chadawar of Axis Securities.

    Other than global macro cues, the biggest trigger for the market would now be the September quarter earnings season which begins next week. Banks, NBFCs, pharma, capital goods, and auto are likely to post strong earnings while pressure is expected in the chemicals, IT and metals sectors.

    Gautam Shah of Goldilocks Premium Research suggests investors should take profits in all the stocks and sectors that have run up substantially in the last four to five months.

    "Railway and defence are spaces where one should take profits. We are focussing on stocks which have quality institutional interest because there is still a lot of liquidity in the system. We are focussing on stocks with quality institutional interest, quality fundamentals, great structural stories, which I do not think will be impacted if the markets were to correct," Shah said.

    Elara Securities expects incremental flows to look for names that are cheaper on a growth-adjusted basis. The brokerage's list of cheapest stocks on a PEG basis from the midcap and smallcap indices include NHPC, Samvardhana Motherson, Bharat Forge, SJVN, Chalet Hotels, PVR Inox and Som Distilleries.

    (Data inputs: Ritesh Presswala)

    (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)



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    (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2024 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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