"For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favourable business developments."
Well, this quote by Warren Buffett pretty much sums up the investing approach followed by most of the investors. A too-high purchase price is just an enemy for good returns. It becomes imperative for investors to find companies that have good fundamentals and are also trading at cheap valuations. Because only then, we can expect good returns.
So in this blog, we will be talking about such fundamentally strong undervalued stocks and where you can find them.
Best Value Bargain Stocks
Let us see some of the parameters that we have taken into consideration for selecting the stocks that will be discussed in this blog. Here is the strategy that we have used :
Debt to Equity Y1 < 0.5 AND ROE 3yr Avg > 10 AND Net Profit Growth Y1 > 15 AND Net Profit 3yr CAGR > 10 AND MCAP > 500 AND Net sales 3yr CAGR > 10 AND FCFF Y1 > 0 AND Net Sales Y1 > 0 AND PEG ratio < 1.5 AND Promoter Pledging Q1 < 10
Now, let us discuss some undervalued stocks :
1. Deepak Nitrite
Deepak Nitrite is one of the leading chemical intermediates companies. The company has a whopping 70% Market share in Sodium Nitrite, Sodium Nitrate & NitroToluenes in India. So complex, right?
Well, in layman language, the products made by this company are used industry-wide; i.e., in agrochemicals, dyestuffs, pigments, inks, whiteners, pharmaceuticals, fuel additives etc. Deepak Nitrite focuses a lot on its R & D activities and invests up to 1% of its total revenue in research.
You might have got an overview of what the company does. But before going on to the financials, let us have a look at the price chart of the company in the last 1 year :
A CAGR of 274.8%! Then, how is it undervalued, you ask? Enter financials.
Financials of Deepak Nitrite
To start with, the company has a PEG ratio of 0.26 which suggests that the stock is still undervalued given its future earning expectations. It has maintained a healthy ROE and ROCE of 26% and 31% over the past 3 years. Not only this, the company has shown a good profit growth of approximately 62% over the last 3 years. No wonder, Deepak Nitrite has been one of the investors’ favourite stocks.
2. IOL Chemicals and Pharmaceuticals
IOLCP is one of the leading companies in bulk drugs (API) and a significant player in the field of speciality chemicals. These speciality chemicals are used in a variety of end products in the markets, including Ink industry, flexible packaging, adhesives, etc. Under API or “Active Pharmaceutical Ingredient” vertical, various products like Ibuprofen, Metformin HCL are manufactured that are used by pharma companies all over the world.
IOL Chemicals and Pharmaceuticals Ltd. is the largest producer of Ibuprofen with a 35% market share. You must be wondering, what is this Ibuprofen? Ibuprofen is an everyday painkiller for a range of aches and pains. Well, the next time you have a headache and you take a painkiller, do bother to read the name once.
Anyway, let’s take a look at the price chart of this company :
Financials of IOLCP
The company has shown an excellent sales growth of 39% and a profit growth of a whopping 326.1% in the past 3 years! The company has consistently reduced its debt and is now almost debt-free. An interest coverage ratio of 26.48% just acts like icing on the cake. With a PEG ratio of just 0.13, the company is undervalued. The stock has given a return of almost 35% over the last 5 years. This stock is surely a “ PAIN KILLER” for an investor with a portfolio of overvalued stocks!
3. Mahanagar Gas
Mahanagar Gas Limited, (MGL) is one of India's leading and largest Natural Gas Distribution Companies. MGL is the sole distributor of CNG and PNG in Mumbai Thane urban and adjoining municipalities and the Raigad district in the state of Maharashtra India. The company has a vast supply network of more than 4300 km of the pipeline distribution system.
Have a look at the price chart of the stock:
Although the stock has given a return of ~18% in the last 1 year, there is a lot of potential underlying in the stock.
Financials of MGL
The company has shown an average sales growth of 13.48% in the last 3 years. Not much right? Wait till you hear the profit growth as the company has shown a profit growth of 27% in the last 3 years. The company is virtually debt-free and has an outstanding interest coverage ratio of around 152. The company has a PEG ratio of around 0.4. ROE and ROCE for the company stand at 26% and 37% for the past 3 years, respectively. When will the stock hit the “GAS” though?
4. Ester Industries
With an experience of around 30 years in the industry, Ester Industries Ltd. manufactures Polyester Films, Specialty Polymers and Engineering Plastic compounds. Polyester films are widely used in industries as an insulating medium. Speciality Polymers come under the category of High-Performance Polymers (HPP), which are used in some key industries including Plastics, Automobiles, Aeronautics, Smart Devices, Healthcare etc.
As you might have got an overview of what the company does, let us have a look at the price chart of the company :
The stock has given a CAGR return of 48%, which is quite above average!
Financials of Ester
Although the sales growth for the company is only 14% over the last 3 years, the profit growth during the same period has been a whopping 125%! The company has been focusing on reducing its debt over the years and to add to that, the interest coverage ratio stood at 6.67. ROE & ROCE stood at 27.5% and 29% respectively for the last 1 year. Not only this, the PEG ratio stood at just 0.04, which gives us a hint that the company is still undervalued and has a lot of potential in future.
5. Gujarat State Petronet
GSPL, a subsidiary of Gujarat State Petroleum Corporation Limited is a leading company in developing energy-transportation infrastructure in Gujarat and connecting major natural gas supply sources and demand markets. It is a Pure Natural Gas Transmission company and is the first company in India to transport natural gas on an open-access basis. Customers for the company include power fertilizer, steel chemical plants and local distribution companies.
Let us have a look at the price chart of the company :
Financials of GSPL
The company has shown an excellent sales growth of around 27% and a profit growth of 48% in the past 3 years. The company has consistently tried to reduce its debt and has a healthy interest coverage ratio of 7.62. ROE AND ROCE for the company stood at 41% and 28% respectively for the past 3 years. The stock has a PEG ratio of around 0.42, which tells us that the stock is still undervalued and has a lot of potential!
All these companies have high growth potential as at the current valuations, they are indeed undervalued. We know you are looking for more of such companies and that is why we have something special made specifically for you!
To find more stocks like these, you can simply browse Ticker, visit the “Bundles section” and choose the “Value Bargain” segment. You will find more than 50 such companies! Yes, you’ve heard it right, 50! Nothing stops you from getting your hands over some valuable gems!
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." This quote by Warren Buffett gives what we can call is the perfect ending to the blog. We should try to find undervalued companies but it is not necessary that every company at a cheap valuation is good. It’s okay to pay a little more for a company with good fundamentals.
Disclaimer - These are in no way stock recommendations from our side. All the stocks have been taken for educational purposes only. Investors are advised to take a decision on investing while keeping in mind their financial goals and considering the strength and risks associated with the company.