A company’s stock is said to be ‘fundamentally strong’ when it showcases some specific set of characteristics such as strong & consistent financials, low leverage ratios, and many more.
Listed below is one such fundamentally strong Penny stock with high profitability ratios and attractive valuations to add to your watchlist:
DRC Systems India Limited
With a market capitalization of Rs 184.17 crores, the stocks of DRC Systems India Limited closed at Rs 41.95 on Friday, gaining around 2.50 percent as compared to the previous close of Rs 40.96 apiece.
The company’s stock displays factors of being ‘undervalued’ since it has a price-to-earnings (P/E) ratio of 25.22 which is lower than the industry P/E of 26.88.
Having a quick walkthrough of the financials, the company, on a YoY basis, has reported an increase in its prime business indicators such as operating revenues and after-tax profits. The operating revenues rose from Rs 19 crores during FY21-22 to Rs 21 crores during FY22-23, and, the after-tax profits took an upward shift from Rs 70 lakhs to Rs 4 crores.
In addition to the above, the profitability ratios of the company showed decent improvement with the return on equity (RoE) shifting from 10.36 percent during FY21-22 to 13.24 percent during FY22-23, and, the return on capital employed (RoCE), in alignment with the pattern, moved up from 5.58 percent to 18.85 percent.
The net profit margins of the company grew more than 500 percent from 3.60 percent during FY21-22 to 19.25 percent during FY22-23.
Adding on to the positives, the company’s debt-to-equity ratio, considered one of the most important leverage metrics, went down to ‘zero’ during FY22-23 as compared to 2.23 times during FY21-22.
As per the shareholding pattern for the quarter ended June 2023, the company’s Promoters hold a 22.57 percent stake and the Foreign Institutional Investors (FIIs) hold a 1.05 percent stake in the company.
Founded in 2012, DRC Systems India Limited is a company based in India that is engaged in the business of software development outsourcing. The company provides technology services to customers within as well as outside the country. Geographically, most of the company’s revenue is generated from operations in International markets.
Written by Amit Madnani
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