6,000% Gains in a Year. What's Driving these Penny Stocks?

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  • Jun 1, 2022 - 6,000% Gains in a Year. What's Driving these Penny Stocks?

6,000% Gains in a Year. What's Driving these Penny Stocks?

Jun 1, 2022

6,000% Gains in a Year. Whats Driving these Penny Stocks?

A question that is asked by a lot of people these days is 'are penny stocks really worth the risk'?

There are many answers to this.

As you know, like every other asset class, investing in penny stocks brings with it risks.

We're not talking about minimal risk where you'll lose 10-15% and settle for a minimal loss. The penny stocks universe has often seen stocks come down as much as 80-90% in a short span of time.

For example, penny stocks like Premier Capital Services, Superior Finlease, Future Retail and Evexia Lifecare are down over 80% from the levels they were trading a year ago.

There are more on this list...

That is why, from the entire penny stocks list, only a couple of them would be investment worthy.

While penny stocks are notorious and known for their illiquid status, a select few can deliver massive gains in a short span.

It's not unusual for a penny stock to climb as much as 5x, 10x or a whopping 100x in a short span.

In this article, we look at the top performing and worst performing penny stocks over the past one year.

Let's get started with the gainers first...

#1 Raj Rayon Industries

Trading at less than half a rupee a year ago, shares of Raj Rayon Industries have seen a meteoric rise over the year gone by.

How big gains are we talking about? How about a whopping 6,165%?

chart

Shares of the textile company have risen from a mere Rs 0.23 to Rs 15 in a year.

Raj Rayon's December quarter results were out of the box where it reported a massive rise in profits. It has a record of reporting losses for more than seven quarters, but the company turned profitable in December 2021.

The party does not seem to end anytime soon as the stock continues to go up.

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

Interestingly, promoters of Raj Rayon offloaded their entire holding in the March 2022 quarter. At present, promoters stake stands at nil.

Raj Rayon Industries is engaged in the business of manufacturing and trading of polyester chips, polyester yarn and processed yarn.

#2 Cressanda Solutions

Cressanda Solutions is another penny stock which traded at less than one rupee a year ago. It has delivered multibagger returns in 12 months.

Trading at Rs 0.6 back in June 2021, shares of the company currently trades at Rs 34 with a marketcap of Rs 13.4 bn.

This translates into gains of more than 5,400%.

Cressanda Solutions is an India-based company engaged in providing information technology (IT), digital media, and IT enabled services.

There have been a lot of developments in the past three months which could have triggered the sharp rally.

This year, the company appointed Preeti Das as its new director. Das previously held senior leadership positions at Microsoft and Oracle Financial Services.

The company is also clinching big deals from reputed clients. It entered into an agreement for providing tech-powered infrastructure solutions for unaddressed passenger experience in India.

More recently, the company acquired a 100% stake in Bengaluru-based Lucida Technologies, to mark its maiden foray into the fields of artificial intelligence (AI) and machine learning.

You know how it is...the company is foraying into new technologies and Mr. Market has already rewarded the company for doing so.

#3 Equippp Social

Third on the list is a company engaged in the agri-commodities trading and production, processing, and trading of seeds.

Equippp Social's stellar rally started in May last year when the shares were quoted at less than Rs 5. What followed next was mind blowing. Shares of the company rose to Rs 185 in just 4 months!

The rally was short lived as shares came tumbling down to less than Rs 100.

Still, if we see the performance in the year gone by, Equippp Social shares have 2,800% gains to boast about.

The rally contrasts with the financial performance but that's the story with most of the penny stocks.

For more than 10 quarters, the company has reported zero sales and has only reported a profit in March 2021 quarter.

What's more, the company turned profitable in March 2021 but prior to that, it had eight consecutive years of losses.

It seems the low liquidity is the prime reason driving the stock. As of March 2022, promoters of Equippp Social hold around 97% stake.

Which penny stocks have gained the most in the year gone by?

Apart from the above, here are the best performing penny stocks over the past 12 months.

Company Name Change in a Year (%)
Alliance Integrated Metaliks Ltd. 1,949%
Sindhu Trade Links Ltd. 1,838%
Adinath Textiles Ltd. 1,646%
Bombay Wire Ropes Ltd. 1,622%
Impex Ferro Tech Ltd. 1,513%
Brightcom Group Ltd. 1,432%
MRC EXIM Ltd. 1,418%
Salem Erode Investments Ltd. 1,209%
MIC Electronics Ltd. 1,202%
Vegetable Products Ltd. 1,133%
Source: Equitymaster

Moving on to the top losers, lets start with Premier Capital Services.

#1 Premier Capital Services

It's all slippery slope when you chart out the share price chart of Premier Capital for the past year.

Here's how it looks like...

chart

From trading at Rs 40 back in June 2021, Premier Capital now trades at Rs 6.

Premier Capital is primarily engaged in the businesses of investing, buying, selling, transfer, and disposing of any shares, securities, properties, bonds, etc.

#2 Future Retail

Down over 80% in the year gone by, Future Retail is next on our list.

A year ago, the company used to trade at Rs 70. Skip forward to present, shares are locked in continuous lower circuits and currently trades at Rs 8.

As things stand now, it appears the company is set for more pain ahead. The company is facing an insolvency petition filed by its lenders before the National Company Law Tribunal (NCLT) as it has committed defaults.

Over the past couple of months, Future Retail has seen several top-level exits after the Rs 247.1 bn deal with Reliance Retail was called off. The exits include the MD and company secretary.

Adding to pressure is continuous selling by foreign investors and mutual funds. Just take a look at Future Retail's shareholding pattern and you'll see the changes are constant.

This certainly raises a red flag.

Which penny stocks have fallen the most in the year gone by?

Apart from the above, here are the worst performing penny stocks over the past 12 months.

Company Name Change in a Year (%)
Evexia Lifecare Ltd. -82%
PALM Jewels Ltd. -82%
Tiaan Consumer Ltd. -79%
GG Engineering Ltd. -76%
Future Lifestyle Fashions Ltd. -75%
Narayani Steels Ltd. -73%
Birla Tyres Ltd. -73%
KBC Global Ltd. -73%
Future Consumer Ltd. -71%
Trescon Ltd. -71%
Source: Equitymaster

To conclude...

Now that you've seen how penny stocks can make or break your portfolio, surely you must be on the lookout for penny shares to buy today.

So what's stopping you from buying the top penny stocks in India?

Well, the added volatility these days is one big concern. It's not surprising that most retail investors have suffered heavy losses in the recent market correction. Be it bluechip stocks or midcap growth stocks, many of them have been taken to the cleaners.

So you can imagine what could happen if the penny stock you're holding in your portfolio comes into spotlight for some wrong reasons.

What we'll suggest is don't panic amid the volatility and stick to a solid investing process.

In penny stock investing, it's very important to distinguish between good penny stocks that are investment worthy and the ones that are highly speculative.

Retail investors have a liking for penny stocks because they are low priced, and they can buy large chunks of these stocks at low prices.

They also like the prospect of earning multibagger returns in the short term.

But one should note that most of these stocks can have no track record of sound fundamentals, they will be saddled with debt, and have low promoter holding.

In a volatile market (like the present one), be very selective and look out for fundamentally strong penny stocks that regularly pay out dividends. This way, your downside will be capped.

Always look out for the company's debt level. A debt to equity of lower than 1 or even better, debt free penny stocks should be preferred.

With a clear strategy by your side, your journey can turn out to be relatively more comfortable. Who knows, these might be your multibagger penny stocks for 2025.

Happy Penny Stock Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

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