Investing in Small-Cap Multibagger Stocks: A Safe and Profitable Strategy for 2017

Small-cap multibagger stocks are an intriguing investment opportunity, offering high returns and growth potential, provided traders and investors conduct a thorough analysis. However, it is crucial to understand the inherent risks, especially when dealing with small-cap companies. This article explores the characteristics and potential of small-cap multibagger stocks and provides a detailed analysis of Lypsa Gems, a standout micro-cap company in the diamond and gold jewellery sectors.

Understanding Small-Cap Multibagger Stocks

Small-cap multibagger stocks refer to small-cap companies that see significant price appreciation, often exceeding 1000% within a given time frame. Investing in these stocks can be risky, but the benefits of high returns and potential growth are substantial. However, it is important to recognize the challenges associated with such investments, such as low liquidity and market volatility.

Low Liquidity: Small cap stocks typically trade with lower volumes compared to larger cap stocks. This means that if investors wish to exit a position quickly, they may face difficulty in finding buyers or sellers at the desired price, leading to higher transaction costs and potentially lower return on investment.

Market Volatility: Small cap company stocks are prone to sharp and unpredictable price movements, often moving in 'circuits.' Understanding and predicting these movements require a meticulous technical analysis, as illustrated in the provided chart.

Detailed Analysis of Lypsa Gems

One of the most promising multibagger stocks for 2017 is Lypsa Gems, a micro-cap company operating in the diamond and gold jewellery sectors. A comprehensive analysis of this stock reveals its attractive fundamentals, growth potential, and strong financial trends.

Company Background: Lypsa Gems is a micro-cap company with a market cap below Rs. 300 crore. The company operates in the diamond and gold jewellery sectors, offering a unique product range that includes high-quality jewellery and accoutrements.

Lypsa Gems stands out for its excellent financial performance and growing shareholder value. Below is a detailed analysis of the company's financial health:

Valuations and Financial Performance

Lypsa Gems has very attractive valuations, with a price-to-earnings (P/E) ratio of just 3.95. This low P/E ratio indicates that the stock is undervalued relative to its earnings, making it a formidable investment opportunity. Additionally, the company's earnings have grown significantly over the past year, while its stock price has fallen, creating a compelling buying opportunity.

Key financial metrics:

Quarterly PAT: The company's profit after tax (PAT) has shown consistent growth over the past five quarters, with the highest PAT of Rs. 7.62 crore in the most recent quarter. Net Sales: The company's net sales have also seen significant growth over the past five quarters, with the highest quarterly sales of Rs. 83.47 crore in the most recent quarter. EPS: The earnings per share (EPS) have been consistently high, with the highest EPS of Rs. 2.58 in the most recent quarter. Debt to Equity Ratio: The half-yearly debt to equity ratio has fallen to an impressive 0.21 times, indicating a strong balance sheet and low financial risk. Inventory Turnover: The inventory turnover ratio stands at an amazing 309.66 times, which is higher than any of the previous five half years.

Despite the strong financial metrics, investors should note the following:

Cash Reserves: The half-yearly cash and cash equivalents figure is the lowest in the past six half years, at just Rs. 0.50 crore, which could be a concern for liquidity.

Technical Analysis and Market Trends

Technical indicators suggest an optimistic outlook for Lypsa Gems. The stock experienced a major breakout with a 9.81% gain in price and a surge in trading volume by 466.81% compared to the average traded volume for the last five trading days. These technical signals indicate a potential for further growth in the coming months.

Recommendation and Target Price

FinancialIQ Wealth Management Services recommends buying Lypsa Gems at its current market price (CMP) of Rs. 41.40 and accumulating more on dips. The stock is expected to remain attractive below Rs. 69. A positive earnings per share (EPS) for the December quarter and a projected EPS of Rs. 2.39 for the upcoming quarter make the stock even more attractive.

Recommendation: Buy at CMP and keep accumulating on dips for a medium to long-term investment. The recommended buy target range is between Rs. 45.50 and Rs. 75.00.

Stop Loss: The stop loss is set at Rs. 35.50, providing a protective measure against potential short-term volatility.

Date of Recommendation: 10:00 pm, 27/12/2017

Disclaimer: The calls above are for educational purposes only. All investors should conduct their own research and take responsibility for their own trades. FinancialIQ will not be held accountable for any losses incurred.