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Top 5 Smallcap Stocks with Attractive PEG Ratios

Oct 27, 2023

Top 5 Smallcap Stocks with Attractive PEG Ratios

A PEG ratio (price-to-earnings-to-growth ratio) is a valuation metric that accounts for a company's price-to-earnings ratio and its earnings growth rate.

A powerful valuation tool, it can help investors identify stocks for the long-term. Investors can screen for stocks with a PEG ratio below 1 and a high expected earnings growth rate.

When it comes to elevated earnings growth, the small-cap segment of the market shines brightest.

So, here are the top 5 smallcap stocks trading at attractive PEG ratios.

#1 Maharashtra Seamless

At the top of our list is Maharashtra Seamless, the flagship company of the well-diversified DP Jindal Group.

The company manufactures an extensive range of seamless pipes, primarily used in oil exploration boilers and pipelines. Apart from pipes, the company has diversified into renewable power generation.

It enjoys a 55% market share in the seamless pipes segment serving a wide variety of industries from agriculture and chemicals to engineering and oil and gas.

Maharashtra Seamless Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 40.85% -13.18% -11.60% 79.95% 34.40%
Operating Profit Margin (%) 24.16% 22.33% 23.95% 17.21% 17.60%
Net Profit Margin (%) 5.81% 5.51% 6.40% 10.32% 13.40%
Return on Equity(%) 5.80% 3.60% 3.70% 17.40% 16.10%
Return on Capital Employed(%) 11.50% 5.60% 5.70% 12.40% 19.50%
Data Source: Ace Equity

On a CAGR basis, Maharashtra Seamless has generated revenue and net profit growth of 16.7% and 44.2%, respectively in the past five years (2019-23). The return on capital employed (RoCE) and return on equity (RoE) stand at 10.9% and 9.3% respectively.

Despite a stellar performance, the PEG ratio of 0.01x indicates that the stock has room for growth.

The company's strong belief in future growth, backed by a robust order book, instils confidence.

Besides, the outlook of the seamless segment is bright. The global seamless pipes market should grow well, driven by a resurgence in exploration & production activity in the oil & gas sector.

Another key driver is the growing demand from the sugar and chemical industries.

Apart from this, the government initiatives to boost the oil and gas sector will also help expand demand growth. The government of India has also announced specific policies for pipe manufacturers and the Make in India and Aatmanirbhar Bharat policy.

The company is currently in the process of amalgamating its fully owned subsidiary, USTPL. Absorbing this will drive up the independent business capacity by more than 40%. Moreover, it will result in cost optimization for both entities and is likely to create synergies going forward.

To know more about the company, check out its financial factsheet and latest financial results.

#2 Satia Industries

Next on our list is Satia Industries.

Satia Industries is one of the leading wood and agro-based paper manufacturers in India, with a fully integrated manufacturing setup. The company supplies paper directly to various state boards, accounting for over 40% of the business. It enjoys a 10-12% market share in the state orders.

The state orders are tender driven, funded by the government and generate higher margins, in comparison to the paper sold in the open markets.

With a strong lineage in the business, the company is well-poised to benefit from the country's literacy mission. With strong prospects and its dominant foothold in the market, the stock is trading at a PEG ratio of 0.04x.

Satia Industries Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 13.34% 9.88% -27.94% 54.37% 111.00%
Operating Profit Margin (%) 19.69% 19.83% 20.39% 19.65% 21.69%
Net Profit Margin (%) 2.02% 2.09% 1.12% 2.26% 10.20%
Return on Equity (%) 28.50% 23.20% 11.10% 18.50% 26.20%
Return on Capital Employed(%) 31.70% 24.40% 12.50% 17.20% 22.10%
Data Source: Ace Equity

The business has been reporting stronger numbers and is likely to grow at a strong pace. In recent years, the company's business has expanded significantly.

Between 2019-23, the sales have grown at a CAGR of 26.7% in the past four years, while net profit has grown by 21.6% during the same time.

The company's debt to equity stands at 0.7x and its RoE and RoCE at 21.5% and 21.6%, respectively.

To know more about the company, check out its financial factsheet and latest financial results.

#3 C.E. Infosystems

Third on our list is C.E. Infosystems.

C.E. Infosystems is a mid-sized IT firm that offers data and technology products. It is India's leading provider of advanced digital maps, geospatial software and location-based (Internet of Things) IoT technologies.

The company is trading at a PEG ratio of 0.12x.

Despite Google's monopoly in the mapping business, the company has evolved into a strong mapping contender with a suite of products in the digital mapping space.

With an 80% market share in auto navigation systems, it benefits from the growing demand for mapping services due to increased smartphone and mobile internet penetration in India.

What sets it apart from the mapping giant Google is that the company caters to the B2B segment. Moreover, unlike Google Maps, the company's mapping software can be directly integrated and stored into the car's infotainment system.

C.E. Infosystems Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%)   0.12% 17.98% 29.60% 27.48%
Operating Profit Margin (%) 18.90% 19.70% 33.30% 39.00% 40.80%
Net Profit Margin (%) 24.80% 15.60% 39.20% 43.40% 38.20%
Return on Equity (%) 12.30% 8.20% 17.50% 20.20% 20.50%
Return on Capital Employed(%) 16.30% 12.20% 23.80% 27.70% 27.00%
Data Source: Ace Equity

All of which explains the rapid growth in the business. Between 2019-23, CE Infosystems' sales and net profit have grown at a 4-year CAGR of 20.9% of 33.3%, respectively.

The RoE and RoCE have also been strong, averaging 15.9% and 21.4%, respectively, over the past five years.

To know more about the company, check out its financial factsheet and latest financial results.

#4 Affle India

Fourth on our list is Affle India.

Affle India is a leading mobile marketing and advertising technology company that offers a range of digital solutions to businesses.

It helps transform ads into recommendations, helping marketers to effectively identify, engage, acquire, and drive transactions with their potential and existing users.

Despite its leading status, the stock has not been immune to the pessimism in the market towards IT stocks. The stock has underperformed the broad index.

The company is trading at a PEG ratio of 0.42x.

What's surprising is that this fall comes despite a strong performance in the past. The business has been growing well, led by several acquisitions and increasing mobile penetration in the country.

The revenue and profits have grown substantially, reporting a 4-year CAGR of 54.6% and 49.8%, respectively. The 5-year average RoCE and RoE stand at 40.8% and 40.3%, respectively.

Affle India Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%) 44.72% 33.84% 54.82% 109.31% 32.57%
Operating Profit Margin (%) 28.35% 28.16% 33.13% 26.33% 19.80%
Net Profit Margin (%) 19.58% 19.63% 26.13% 19.85% 17.10%
Return on Capital Employed(%) 74.46% 43.09% 39.44% 27.95% 19.40%
Return on Equity(%) 67.43% 43.45% 45.94% 28.00% 16.90%
Data Source: Ace Equity

The company is confident of strong growth, going forward. Earlier this year, the company reported that its business has been growing faster than the industry over the last 3 years.

The company's customer base has also expanded to include some of the big names such as McDonald's, Apollo, Byju's, Swiggy, Zee5, etc. It has recently expanded its services to include AI and ML solutions and is confident of the increased adoption of AI in the digital advertising space.

To know more about the company, check out its financial factsheet and latest quarterly results.

#5 MTAR Technologies

Last on our list is MTAR Technologies.

MTAR Technologies is a leading national player in the precision engineering industry. The company enjoys a well-diversified portfolio of products in the clean energy (63% of revenues), nuclear (14%), space and defence (17%) and other (6%) sectors.

The company was in the news a few months ago on account of the L1 rocket launch by the Indian space programme and the receiving the 'Defence Industrial Licence' for the production of various mechanical and electronic subsystems.

Both of which sent the company's stock price through the roof. But despite this stellar stock price performance, the stock is trading at an attractive level of 0.87x PEG ratio.

Going forward, MTAR technologies seems to be on a promising growth trajectory. It aims to expand its product offerings across all business verticals. Moreover, the new licence will also help it grow at a fast pace going forward.

At present, MTAR Technologies enjoys an active domestic and export market.

Between 2019-23, the company's net sales and profits have grown at a 4-year CAGR of 32.4% and 27.6%, respectively.

MTAR Technologies Financial Snapshot (2019-23)

  2018-2019 2019-2020 2020-2021 2021-2022 2022-2023
Revenue Growth (%)   17.32% 13.57% 33.55% 79.32%
Operating Profit Margin (%) 30.00% 27.10% 33.70% 29.30% 26.80%
Net Profit Margin (%) 21.30% 14.70% 18.70% 18.90% 18.00%
Return on Equity(%) 16.70% 13.90% 9.70% 11.70% 16.70%
Return on Capital Employed(%) 19.60% 22.30% 14.80% 16.30% 22.20%
Data Source: Ace Equity

The 5-year average RoCE and RoE stand at 19.1% and 13.7%, respectively.

The company has always maintained a strong balance sheet with no debt on its books.

To know more about the company, check out its financial factsheet and its latest financial results.

Conclusion

While stocks with appealing PEG ratios are frequently associated with the promise of substantial growth, it's essential to remember that PEG ratios represent just one facet in the evaluation of a stock.

Before jumping into such stocks, investors should also examine additional factors, including the company's financial stability, the proficiency of its management team, and the competitive dynamics within its industry.

Moreover, they must conduct thorough research and gain a deep knowledge of the specific company's business and the industry it operates in. This is crucial when it comes to making informed investment decisions.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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