4 Multibagger Penny Stocks to Watch Out for in 2023

Editor's note: Penny stocks present a high-risk, high-reward investment opportunity. In this editorial, published in early August 2022, we take a closer look at penny stocks that rallied in 2022 and what lies for them in 2023.

While we're not making any recommendations, it's worth keeping an eye on these companies as they could be ones to watch this year.

Multibagger Penny Stocks to Watch Out for in 2023

The markets started showing signs of recovery in July 2022 after a very volatile first half.

The BSE Sensex gave close to a 10% return in the past month after falling close to 14% in the first six months.

Many investors stayed away the market during the correction, fearing heavy losses. Even the most popular penny stocks were isolated.

However, as the market turned green, penny stocks are back on investors' radar. There are several reasons why investors fancy penny stocks.

First, they have a very low market price and investors can buy many shares. Second, they have the ability to offer high returns in a short period.

But investing in penny stocks can be a risky affair. They are extremely volatile and have low liquidity. Moreover, there is very little information available about them. This makes it difficult to analyse them.

However, fundamentally strong penny stocks have the potential to give multibagger returns. In fact, there are several large-cap stocks that were penny stocks once.

Both new and mature investors are on a hunt for such penny stocks. Hence, we curated a list of multibagger penny stocks for 2023 that must go on every investor's watchlist.

Please note that we have picked stocks that have zero debt and have a price-to-earnings (P/E) ratio of less than 35.

#1 Shree Digvijay Cement

First on our list is Shree Digvijay Cement.

Shree Digvijay Cement's share price zoomed more than 200% in the last 28 months. The share price, which stood at Rs 20 in March 2020, trades at around Rs 62 today.

Manufacturing and selling cement are the primary operations of the company. It has only one production plant with a capacity of 1.2 million metric tonnes (MT).

The company has a wide product portfolio with various kinds of cement under the brand name 'Kamal'.

Recently it acquired limestone deposit mines. This will help the company continue its production for the next 20 years.

Moreover, the company addressed its productivity issue by upgrading its equipment. As a result, the company achieved highest clinker production and full capacity utilisation.

In the last three years, its revenue grew at a compound annual growth rate (CAGR) of 10.3% on the back of the economic recovery.

But the growth in sales didn't reflect in profit growth. The net profit slightly declined by 0.7% during the same period due to high raw material costs.

Currently, the company's shares are trading at a P/E of 17.9, which is lower than the cement industry average of 20.1.

Going forward the company might expand its capacity in the existing plant.

To know more about Shree Digvijay Cement, checkout its factsheet and latest quarterly results.

#2 Singer India

Second on our list is Singer India.

Singer India's shares climbed more than 220% from March 2020. The shares that traded at Rs 15 during the market crash in 2020, now trade at around Rs 52.

Its operations include producing sewing machines and related accessories. The company also trades in home appliances, which has been its primary growth segment for the last six years.

Singer India sells its products under the brands' Singer' and 'Merritt'.

Since it follows an asset-light model and outsources most of its production, the company has only two production units in India.

However, it has a vast distribution network with over 13,500 touch points to serve its customers. It also has a strong after-sales service network.

In the last three years, Singer India's revenue growth was muted. Its net profit fell by 1.4% (CAGR) during the same period.

Currently, the shares of the company are trading at a P/E of 33.6. This is similar to the engineering industry average of 33.4.

Going forward, the company plans to capitalise on its strong distribution to increase its revenue.

To know more about Singer India, checkout its factsheet and latest quarterly results.

#3 Ador Fontech

Next on our list is Ador Fontech.

Ador Fontech's share price increased by more than 180% in the last two years. Today, the stock that traded at Rs 26 in April 2020, trades at around Rs 76.

The company manufactures industrial components. It also provides services and solutions such as value-added reclamation, and spraying.

Moreover, the company works for the life enhancement of industrial components and helps in cutting inventory costs.

Ador Fontech produces a wide range of products that includes low-heat input alloys, and welding equipment.

Its customer base includes companies from several industries such as cement, power, steel, and defence.

In the last three years, Ador Fontech's revenue grew at a CAGR of 6%. Its net profit also grew at a healthy rate of 34.5% (CAGR).

Currently, the shares of the company are trading at a P/E of 10.4, which is lower than the electrodes industry average of 22.7.

Going forward, it is investing in research to upgrade welding techniques. With welding being a significant part of the maintenance costs, this will be an excellent opportunity to grow revenues.

To know more about Ador Fontech, checkout its factsheet and latest quarterly results.

#4 NBCC India

Fourth on our list is NBCC India.

NBCC India's shares have climbed more than 113% in the last 28 months. Its shares, which traded at Rs 15 in March 2020, are now trading at around Rs 32.

It is a Navratna company that offers project management services. The company also operates in engineering procurement and construction, and real estate segments.

It has operations in India, Maldives, Mauritius, and Dubai. NBCC India has also collaborated with a company in Belarus to strengthen and support smart cities with green building technology in India.

Its revenue slightly declined in the last three years due to the pandemic. However, its net profit grew at a healthy rate of 34% (CAGR) due to high-margin re-development projects.

The shares of the company are currently trading at a P/E of 22.9, which is lower than the construction industry average of 25.7.

Going forward, it plans to explore re-development opportunities in Rajasthan.

To know more about NBCC India, checkout its factsheet and latest quarterly results.

Investing in penny stocks is rewarding, but...

Though penny stocks can fetch good returns, they are very risky. They can give both huge profits and losses in a short span of time.

If proper due diligence isn't carried out while selecting these stocks, there are high chances of burning your hands.

Hence it is essential to check the fundamentals of such companies before even considering them for investment.

Fundamentally strong penny stocks have a track record of good sales and profit growth. They also have low or no debt, and a high promoter holding.

Such companies have high potential to become future multibagger penny stocks.

Despite this, you must not allocate more than 5-7% of your equity portfolio to penny stocks to ensure proper diversification.

Watch the below video where co-head of Research at Equitymaster and penny stocks guru Rahul Shah discusses his top penny stocks list in this market.

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...