Small-cap stocks tend to provide superior returns as compared to mid-cap or large-cap stocks, however, they tend to be very risky. When chosen incorrectly, they have the tendency to wipe away the capital invested.
However, a few small-cap companies are fundamentally strong and end up giving multibagger returns in the long run. Investors should always do a thorough fundamental analysis of small-cap stocks before investing in them. Here are two small-cap debt-free stocks that investors can consider adding to their watchlist:
Shanti Gears
Shanti Gears designs, manufactures, supplies and services gears and gearboxes. It is a small-cap company with a market capitalization of ₹ 2,989 crores and its shares were trading at ₹ 385. The company does not have any debt, therefore has a debt-to-equity ratio of 0.00. In other words, it is debt free.
It has an ideal return on equity of 17.09% and a dividend yield of 0.69%. Its shares are trading at a price-to-equity ratio of 49.52, which is significantly higher than the industry PE of 33.50, therefore the stock may be overvalued.
Swaraj Engines
The Mahindra Group company manufactures diesel engines specifically for tractors in the range of 22 HP to above 65 HP and hi-tech engine components. It has a market capitalization of ₹ 1949 crores and is a small-cap company. Its shares were trading at ₹ 1587. Swaraj Engines is debt free, and hence has a debt-to-equity ratio of 0.00.
It has an excellent return on equity of 37.35% and a good dividend yield of 4.98%. Its shares are trading at a price-to-equity ratio of 16.90, which is significantly lower than the industry PE of 33.50, therefore the stock may be undervalued and its price might increase in the future.
GM Breweries
The company manufactures and markets Alcoholic Beverages such as Country Liquor (CL) and Indian-made Foreign Liquor (IMFL). It is a small-cap company with a market capitalization of ₹ 1080 crores and its shares were trading at ₹ 587. GM Breweries does not have borrowings and has a debt-to-equity ratio of 0.00.
It has an ideal return on equity of 17.04% and a dividend yield of 0.85%. Its shares are trading at a price-to-equity ratio of 10.94, which is significantly lower than the industry PE of 28.67, therefore the stock may be undervalued and its price might increase in the future.
Written by Simran Bafna
