Top 5 Fundamentally Strong Penny Stocks to Watch Out for in 2024

In the ever-evolving landscape of the stock market, if there's one segment investors have their eyes on, it's the penny stock segment.

Priced at below Rs 100, these stocks often present opportunities for investors seeking high potential returns.

While most of them are considered risky due to their low price per share, there are some that possess underlying fundamentals that suggest significant growth potential.

Here are five that you should add to your watchlist in 2024.

#1 Mirza International

First on our list is Mirza International.

The company is a manufacturer and exporter of finished leather and footwear. It is also in the business of trading footwear, apparels and allied products.

It has a reputed customer base comprising Steve Madden, LuckyBrand, Camuto Group, DSW, Crown Vintage, Kenneth Cole, Marc Fisher, Next, Marks & Spencer, among others.

While the company's sales and profit growth has been underwhelming in the last few years, its future seems promising.

The company recently merged promoter group-owned entity RTS Fashions into the company and the demerged its branded shoe business into Redtape in March 2023.

As per the demerger agreement approved by the National Company Law Tribunal (NCLT), shareholders of Mirza International received one fully paid-up equity share of RedTape, with a face value of Rs 2, for each share they held in Mirza International.

Post the demerger, the company will focus on manufacturing and export of leather-based footwear and accessories, which has been its mainstay since inception.

In 2024, the export business is expected to drive revenue and profit growth. In the absence of any major debt-funded capex, the capital structure and coverage indicators are likely to remain strong as well.

The company is debt free and has high promoter holding at 71.8% as of December 2023.

The stock is down more than 80% in the last year due to the demerger. However, it is up 5.8% in the last six months.

To know more, check out Mirza International's financial factsheet and latest quarterly results.

#2 Bodal Chemicals

Second, on our list is Bodal Chemicals.

The company is India's leading integrated dyestuff company and the largest domestic manufacturer of dye intermediaries.

It has a market share of 20% in the domestic dye intermediaries' market and 13% in the dyestuffs market. The global market share is 6% and 3%, respectively, in the dye intermediaries and dyestuffs market.

Why should Bodal Chemicals be on your radar?

The company has state-of-the-art research and development (R&D) laboratories that it uses to develop new products and processes. Recently, it also added benzene derivatives to its product portfolio.

Bodal Chemicals has also invested Rs 4 bn in a greenfield project to increase the capacity of speciality benzene downstream products. This is expected to be operational by December 2023.

Coming to its financial performance, the company's revenue has grown at a CAGR of 7% in the last three years, driven by capacity expansions. The net profit fell slightly due to high input costs.

The company also pays consistent dividends to its shareholders, and its P/BV ratio stands at 0.9x, much lower than the industry average and its peers.

With the new greenfield project expected to commence production, the company will benefit from higher production, which could improve sales and profit growth.

Bodal Chemicals shares are down 4% in the last month. However, the stock is up 34% in the last year.

To know more about Bodal Chemicals, checkout its factsheet and latest quarterly results.

#3 Lahoti Overseas

Third, on our list is Lahoti Overseas.

The company is an exporter of yarn and textiles and deals in generation of power through windmills and solar panels.

The stock is expected to re-rate in 2024 on the back of the government's decision to waive customs duty on the import of extra-long staple cotton (up to 32 millimeters in length).

The waiver is expected to trim down the cost of raw materials and enhance the company's profit margins.

A revival in demand is also expected to boost the company's sales.

While the company's sales have fallen by 7% over the last five years on account of muted demand, its net profit has grown at a CAGR of 35% on account of lower expenses.

Despite a deterioration in operational and financial performance, the company's debt metrics have remained healthy due to minimal debt in the balance sheet and low interest expenses.

Its debt-to-equity ratio stands at 0.09x. Promoter holding is also comfortable at 59.8%.

Shares of Lahoti Overseas are down 7.6% in the last month. However, the stock is up more than 90% in the past year.

To know more, check out Lahoti Overseas financial factsheet and its latest quarterly results.

#4 Hindustan Media Ventures

Fourth on our list is Hindustan Media Ventures (HMVL).

HMVL is a company promoted by HT Media Ltd. The company's brands include Hindustan, LiveHindustan.com, Nandan and Kadambini. It derives its revenues from advertisement and subscription.

HMVL's financials have taken a beating in the last few years due to a fall in revenue of the company's print media business. However, the company is set to turn this around with its foray into the digital space.

The company is investing in OTTplay, an OTT (over-the-top) platform and expects profitability in the future. Viewers can access OTTplay subscription on multiple screens like TV and mobile devices.

The new business venture has seen substantial investment and is expected to start delivering profits. The business is expected to achieve 15-20% EBITDA margin at maturity.

Besides this, the TRAI recommendation for radio in mobile phones could also be a game changer for the industry.

The company has taken actions to control costs and improve profitability and expects better results in the second half of the year.

HMVL has a low debt to equity ratio of 0.1x. It also has a high promoter holding of 74.4% as of December 2023.

To know more, check out Hindustan Media Ventures financial factsheet and its latest quarterly results.

#5 Pudumjee Paper Products

Last on our list is Pudumjee Paper Products.

The company is engaged in the business of manufacturing specialty paper for food grade packaging, household, and sanitary uses etc.

Its market position is healthy, with a share of 30-40% in the various sub-segments of the domestic speciality paper industry.

The company has strong fundamentals. Its revenue has grown at a CAGR of 9% in the last five years. However, net profit has grown even higher at a CAGR of 21% on account of better operating efficiency.

This has resulted in healthy return ratios. The company's RoE stands at 15.4x while its RoCE stands at 18.4x.

It has also reduced its debt over the last year. Its debt-to-equity ratio stands at 0.1x. Additionally, promoter holding stands strong at 71.3%.

Going forward, Pudumjee Paper Products is set to benefit from an increase in paper consumption.

The Indian government's proactive initiatives, such as the Make in India campaign and the establishment of packaging parks, are providing a conducive environment for the packaging industry to thrive.

Moreover, the recent ban on single-use plastics has driven e-commerce businesses to adopt eco-friendly alternatives, such as paper-based packaging which is expected to lead to renewed demand for paper products such as straws, cups, and bags.

Shares of Pudumjee Paper Products are down by 13.8% in the last month. However, the stock is up more than 70% in the last year.

To know more, check out Pudumjee Paper Products financial factsheet and its latest quarterly results.

Conclusion

Investing in fundamentally strong penny stocks can be enticing, but it's crucial to approach with caution.

Despite potential for high returns, penny stocks often lack liquidity and are susceptible to volatility. In 2024, amid dynamic market conditions, investors should conduct thorough research into company fundamentals, including earnings reports, management competency, and industry trends.

Diversification is key; spreading investments across multiple penny stocks can mitigate risk. Additionally, establish clear entry and exit strategies to minimize losses and maximize gains.

Beware of speculative hype and pump-and-dump schemes, as these can artificially inflate stock prices before crashing.

Maintain a long-term perspective and exercise patience, as penny stocks may require time to realize their full potential.

Ultimately, remain vigilant, stay informed, and consult with financial professionals if uncertain.

Remember, while the potential rewards can be substantial, the risks associated with penny stock investments are equally significant.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...