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More Than 10,000% Profit In A Year. What Drives This Penny Stock?


Like every other asset class, investing in penny stocks carries risks.

Are penny stocks really worth the risk?

This is a question many people ask and there seem to be many answers to this.

As you know, like every other asset class, investing in penny stocks carries risks. Many of them.

Think about it, this space often sees stocks go down by 80-90% in a short period of time.

Take for example Ozone World, PALM Jewels, and Evexia Lifecare. Look at the price charts of all these companies and you will see them down over 80% from the level they traded a year ago.

And there are more on this list…

While penny stocks are well known and notorious for their illiquid status, a select few have the ability to deliver huge profits in a short period of time.

It’s not uncommon for a penny of stock to increase by 5x, 10x or 100x a loss in a short amount of time.

We conducted inquiries for stock trading between Rs 100 between 23 March 2021 and 23 March 2022 to see the type of profit that penny stocks offer to investors.

Of the 1,734 shares, 275 delivered negative returns while 14 remained unchanged and traded at the same level traded a year ago.

Surprisingly, 1,445 of them traded in positive territory with many making huge profits.

How big? What about the great 10.150%?

That’s right. Shares of Kaiser Corporation have risen 100x in the past year, rising from Rs 0.38 to just Rs 38.95.

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The party is unlikely to end any time soon as stocks continue to hit the upper circuit.

Data from the BSE shows there are only buyers waiting outside to buy scripts, with no sellers willing to sell their shares (at least for now).

Kaiser Corporation is engaged in the printing of labels, stationery articles, magazines and cartons.

So what justifies a 10,000% rally in stock? Is it because of his finances? Or low liquidity?

Financially, the company did not have enough to support this rally. Net sales for financial year 2021 are in line with sales reported for previous years. While the company is turning a profit in 2021, its profit figures are not unusual.

Could it be a rally as the company’s quarterly performance improves? We don’t know. Maybe.

For the past four quarters, the company has reported increased sales and net profit when compared to the previous year’s figures.

Regarding liquidity, a first glance at a company’s shareholding pattern might tell you a different story. The company’s organizers hold a 59.5% stake which means there is sufficient liquidity for retail shareholders.

But actually not so. The company’s retail shareholding pattern shows that only 6.5% of total equity, or 3.4 million shares is held by individuals. The rest, 33.8%, is held by corporate bodies called Lorance Investments and Xicon Power.

Following in the footsteps of Kaiser Corporation was Polo Queen Industrial & Fintech, earning 6,500% profit.

The company has seen its share price soar from Rs 1 to Rs 66 over the past year. Profits have recently declined due to broad based sales instead it had the highest value of Rs 89 touched in January this year.

The company is engaged in the trade of fabrics, FMCG products and minerals and chemicals. It sells FMCG products under its own brand ‘Polo Queen’s’ in the personal care, home care, kitchen and fabric care segments.

The Polo Queen organizers own about 75% of the total equity. The company in December last year underwent a share split from Rs 10 to Rs 2, making more liquidity available in the market.

This does not bode well as it resulted in a sharp drop in the stock price as can be seen from the chart below.

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Back to top winners…

Cressanda’s Vegetable Products and Solutions is the next with a profit of over 2,900%.

Vegetable Products, which is involved in the business of manufacturing vegetable edible oil products, has grown even though it is a loss -making company.
It sells products under the brand – Pratap Vanaspati.

What caused the sudden rally in this little -known edible oil maker? It may be because the government has reduced import duties following the surge in global commodity prices.

Other than this, here are the best performing penny stocks in the past year.

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Because of its low price, retail investors love it because they can buy most of these stocks at low prices.

Retail individuals also like the prospect of earning high returns in the short term.

But we should note that most of these stocks may not have a strong underlying track record, they will be burdened with debt, and have low promoter holdings.
Basically, not a good track record.

Experts often warn investors that expecting high returns from all penny stocks is a mistake.

On the plus side, penny stocks can also be a great investment as they diversify your portfolio. But it is important that you separate the wheat from the chaff.

In a volatile market (as it is now), be very selective and watch out for penny stocks that regularly pay dividends. This way, your weaknesses will be limited.

Always keep an eye on the level of debt of the company. Debts to equity lower than 1 should be preferred.

To conclude, check the balance sheet, look at the debt-to-equity ratio and see if the company has a consistent track record of dividend payments for the past 5 years.

With a clear strategy on your side, your trip can be more comfortable.

Since you are interested in penny stocks, check out the Joint Head of Research at Equitymaster, Rahul Shah video where he focuses on the right penny stocks to watch in 2022.

Knowing which penny stocks to watch out for will give you an advantage.

Video link – Penny Shares to Add to Your Watchlist in 2022.

Happy Investing!

Disclaimer: This article is for informational purposes only. It is not a stock proposal and should not be treated as such.

Note: Equitymaster.com is currently inaccessible for technical reasons. We regret the inconvenience. In the meantime, please access our content on NDTV.com. You can also follow us on YouTube and Telegram.

(This article is syndicated from Equitymaster.com)

(This story has not been edited by NDTV staff and is automatically generated from a syndicated feed.)

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