Why This Stock Could Be A Multibagger?

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    The collapse of small and midcap has left plenty of opportunities for buying into quality names. Here is a stock that has seen a severe price destruction in the last few trading sessions. At these levels the downside risk on the stock could be very limited. However, it remains a risk reward story and investors could gradually buy into the stock on declines.

    Why This Stock Could Be A Multibagger?

    PC Jeweller

    Not many investors are ready to recommend the stock of PC Jeweller. The shares of the company have fallen from Rs 500 to Rs 78 in a span of 6 months.

    PC Jeweller has been in the eye of a storm on account of a number of reasons. The first time it fell, when the company failed to disclose that one of the promoter had gifted shares to a relative. More recently, the stock fell after the company withdrew its open offer to buyback shares at Rs 350. The reason cited for withdrawal of the open offer was that the bankers did not want the company to go ahead.

    In a way the move is good as the buyback would barely have reduced the equity capital. Now, the company can utilize the proceeds for debt repayment and hence reduce the finance costs. PC Jeweller has recently made a presentation on its expansion plans and that fundamentally nothing has changed.

    The company made a presentation recently on its expansion plans and accordingly has added a number of stores in the last few months. The management has also reiterated that footfalls have been pretty decent.

    There are a few things that could work in favour of the company in the coming quarters. One is that the VAT on gold and diamond sectors at the wholesale level in Dubai has been withdrawn, which should be good for PC Jeweller. Secondly, gold prices have sank to one year low in the global markets, which could once again revive demand for gold jewellery.

    The company ended the financial year 2017-18 with an EPS of Rs 14.73. FY 2018 sales stood at Rs 9,489 crores, up 17.2% over FY 2017. FY 2018 domestic retail net profits were placed at Rs 499 crores, a 42.6% growth over FY 2017.

    Even if PC Jeweller does an EPS of Rs 16, the shares at Rs 78 are trading at a p/e of just under 5 times. The downside risk at the Rs 500 levels were very high. At the current market price of Rs 78, we are unlikely to see a great downside risk. If there is any announcement on repayment of debt, we could see the stock flare-up again.

    Disclaimer

    This article is strictly for informational purposes only. It is not a solicitation to buy, sell in securities or other financial instruments. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and the author of this article do not accept culpability for losses and/or damages arising based on information in this article. The author holds shares in PC Jewelller. 

    Read more about: p c jeweller
    Story first published: Thursday, July 19, 2018, 7:35 [IST]
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