How low Equity Stocks can make you Rich in Stock Market?
Home: business : You are here
The only thing you need to take care is that the fundamentals of such low equity stock companies should be good because if the fundamentals are not good than sellers would hardly find buyers and in that case, the stock price may fall steeply. I remember I bought the stocks of a company called coral laboratories (in pharma sector) at a price of Rs.176 whose equity was only 3.57cr.
As on 31st March 2013, the net worth (reserves) of the company was 43.54cr and debt in their books was zero. So the company was worth 43.54cr as on 31st March 2013. As on 31st March 2014, the yearly profit after tax (PAT) of the company was 7.87cr. It means the company made a profit of 7.87cr in one year (from 1 April 2013 to 31st March 2014) by using the money of amount 47.11cr (reserves + equity). So the return on equity came out to be 16.70% (7.87/47.11*100) which was tremendous. The yearly EPS (earnings per share) was Rs.23 (7.87cr profit divided by total number of shares) which was awesome.
Moreover, I saw that on their balance sheet that their "debt to cash flow ratio from business operations" was only 0.19 which means hardly any payment was stuck with their clients and mostly they used to receive payment on time. So this was a high margin business for me with high return on equity and the company was not at risk of high debt, and none of the shares of the company were pledged to any financial institutions. I thought this was a wonderful opportunity and I bought the shares of this company and now (as on 15 July 2017) the price of this stock is Rs.1058 and I am still holding this stock.
I only mean to say here, that the stock price of low equity stocks rise very quickly, and to a great extent if the fundamental of the company is strong. But before buying low equity shares just make sure to check things like yearly EPS, return on equity or ROCE(must be great than 12%), debt to equity (should be lower than 0.50), debt to cash flow (should be lower than 0.50) and also check PE (price to earnings). If PE is high that means the stock is already overpriced and you don't need to take a risk in buying such stocks. All these data for any company you can check on sites like sharemarkethow.com. Just make use of the search box on the top to know data of any Indian stock listed company. Make use of bigger screen like a laptop or desktop computer as the search box still doesn't work on mobile phones.
Generally, equity less than 10cr is considered as low equity but lower the better. I can also tell you a way to find all stocks in Indian stock market with low equity. Just make use of this stock scanner at sharemarkethow.com. Select "Find all companies with low equity stocks" and then click on "click to find". This will give a huge list of stocks with low equity as per your query and this is what you needed.
Also, check the data of another company called DHP India whose equity is just 3cr and yearly eps is around 47. Even if it trades 12 times of its eps than also its price should be Rs.564 but as I am writing (on 22 May 2018) its price is only Rs.492 which clearly shows the stock is highly undervalued. To know if a stock is undervalued or overvalued you should check how many times it is trading of its eps. Then check other companies in the similar industry and compare the PE multiple and that will give an idea whether the stock is undervalued or overvalued. PE multiple is nothing but the number of times a stock is trading of its EPS.
If you want to trade with zero brokerage fee you should open an account with zerodha. Just check their brokerage calculator. I myself have an account with them and its 100% safe brokerage firm to get free brokerage on equity trades only but not intraday trades. They make money on the interest they earn from millions of rupees of deposits from traders who trade with them. Just check the Alexa rank of zerodha.com website and you can see it ranks around 7000 in the world which means there are millions of traders trading at zerodha and that is the reason it is considered as cheapest and safest brokerage firm.
You may also be interested in
How to know when you will get wealth in your life?
How you can Make more Money by Developing the 7 Chakras in your Body?
Which Indian Stock Listed Company has Monopoly of its Products?
A trick that works best to make money from investing in stocks
What to look for before buying a stock for long term investment?
Why to Buy the Stock of Freshtrop Fruit only before June Quarter Results?
How could a woman be responsible for success or failure in business?
How to win intraday trades in Indian Stock Market?
Written by: Rajesh Bihani who is the webmaster of this website. Know more about Rajesh Bihani).
If you are a regular reader of this site plz donate something such as $3 (INR 200) or $4 (INR 300) or any other bigger amount. Plz click on the donations link above for payment instructions. Also, if you want to learn to make perfect predictions in astrology then you can join my advanced vedic astrology tutorials as mentioned on the "contact me" link above. Your small donation will help me know how much appreciable my content is.