While screening for high-momentum stocks, one counter that came on the radar is Chaman Metallics Limited. It is a lesser-known company that manufactures and sells sponge iron in India and has a market capitalization of INR 226 crore. One good thing here is, that promotors hold a 73.6% stake in the company, very close to the maximum limit of 75%, and more importantly all of it is unpledged.
Because it is not a well-known company, we need to go through ProTips to dig useful information. It says - the stock is trading at low earnings multiple, profitable over the last 12 months, and liquid assets exceed short-term obligations, all of which are quite positive. However, on the flip side, the company is also quickly burning cash.
To gauge the momentum, price history comes in handy. In this case, the stock is up 11% in the last one week and ProTips also says strong return over the last month.
Now coming to the financial health score, here the rating of 3 out of 5 further builds up confidence and eliminates the worries regarding junk stock which is quite common in the small-cap space.
The most important thing here is the current valuation. If the stock is in strong momentum but is overvalued as well, there is a high risk in going long on that counter. Therefore we need to make sure that there is still some room left before the stock becomes fairly valued.
In this case, after analyzing the stock from 12 different financial models, the fair value comes at INR 103.9 per share, depicting a 13% upside potential from the CMP of INR 92.
Because it is such a small company, investors need to be very cautious regarding the liquidity of the counter. A high impact cost (difference between the bid and the ask) can significantly eat into profits.
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X (formerly, Twitter) - Aayush Khanna