Which are the most undervalued smallcap stocks in India right now?
As per Equitymaster's Stock Screener, here are the list of the most undervalued smallcap stocks in India right now...
These companies have been ranked as per their PE (Price to Earnings) ratio and PB (Price to Book Value) ratio. The lower the ratios, the more undervalued the stock is.
Of course, there are other parameters you should take into account before forming a hard opinion on the stock valuation.
How do you know if a stock is undervalued?
One of the quickest ways to gauge whether a stock is undervalued is to compare its valuation ratios to the rest of its industry or its historical average. If it is trading below these numbers, it is likely to be undervalued.
Some of the most commonly used valuation ratios are the Price to Earnings ratio, Price to Book Value ratio and Price to Sales ratio.
How do you find undervalued stocks?
The first step to identifying undervalued stocks is to use a stock screener. A stock screener is a set of tools that allow investors to quickly sort through a large number of companies according to a few pre-defined criteria.
Some of the filters you can use to find undervalued stocks are the Price to Earnings ratio and the Price to Book Value ratio. The lower the number, the more undervalued the stock.
You can use Equitymaster's powerful Indian stock screener tool to find the top undervalued stocks in India.
Are undervalued stocks a good buy?
Undervalued stocks can be great options for investors looking for hidden bargains. In theory, if a stock is truly undervalued, its stock price will increase.
However, not all undervalued stocks are great buys. Investors must be cautious of value traps. Value traps are investments that are trading at such low levels and present as buying opportunities for investors but are actually misleading.
What are smallcap stocks?
According to the market regulator, smallcap stocks are companies which rank 251st and beyond in terms of their market capitalisation.
Investing in them is perceived to be risky. However, the potential for higher returns makes them an appealing investment avenue.
How much should you invest in undervalued smallcap stocks?
According to us, in a scenario of ideal allocation of funds, small cap stocks should not comprise more than 10% of one's total equity portfolio.
Further, we believe that a single small cap stock should ideally not form more than 2-3% of the total portfolio.
Please note that this allocation will vary from person to person. For something that works best for you, we recommend you talk to your investment advisor.
How should you screen smallcap stocks?
Investing in smallcap stocks can be a tall order because they are less proven, and so are rife with speculative investment due to lack of data and operation history.
If you're looking to invest in the smallcap space, this is how you should screen for the best smallcap stocks.