The Piotroski score is a score between zero and nine, that reflects nine criteria used to determine the strength of a company’s financial position, with nine being the best and zero being the worst.
The score considers net income, return on assets, operating cash flow in the current year, gross margin, asset turnover ratio, dilution of shares, current ratio, long-term debt and checks if cash flow from operations is greater than net income. One point is allocated if each of these parameters is ideal.
Here are three small-cap multibagger stocks with a high Piotroski score:
Elecon Engineering Company Ltd
The company is a pioneer in the manufacturing and designing of Industrial Geared motors and Reducers, Material Handling Equipment, Mining equipment, casting processes and allied products. Ace investor Vijay Kedia holds a 1.9% stake in the company.
Its shares closed at ₹ 449.95 apiece on the National Stock Exchange (NSE) on Friday. In the past year, its share price has risen from ₹ 187.50 apiece to the current levels, giving multibagger returns of 140%. Therefore, if an investor had invested ₹ 1 lakh in the company’s shares a year ago, the value of their holdings would have been ₹ 2.40 lakhs today!
Elecon Engineering has a Piotroski Score of 9.00 and is a small-cap stock with a market capitalization of ₹ 5,048 crores. It has a return on equity of 14.27% and an ideal debt-to-equity ratio of 0.05. The company’s shares were trading at a price-to-earnings ratio of 23.38 which is lower than the industry P/E of 36.09, indicating that the stock is undervalued as compared to its peers and its price might increase in the future.
Magellanic Cloud Ltd
The BSE-listed company is engaged in providing IT services in software development, consulting and human resource business solutions.
Its shares were trading at ₹ 91.75 apiece a year ago and closed at ₹ 188.35 apiece on Thursday, giving multibagger returns of 105 %. Therefore, if an investor had invested ₹ 1 lakh in the company’s shares a year ago, the value of their holdings would have been ₹ 2.05 lakhs today!
Magellanic Cloud has a Piotroski Score of 9.00 and is a small-cap stock with a market capitalization of ₹ 2,201 crores. It has an excellent return on equity of 45.00% but a slightly high debt-to-equity ratio of 1.17. The company’s shares were trading at a price-to-earnings ratio of 36.55 which is higher than the industry P/E of 27.28, indicating that the stock might be overvalued as compared to its peers. This could mean that investors are willing to pay a higher price for the company’s future earnings.
Waaree Renewables Technologies Ltd
The BSE-listed company is engaged in the business of generation of power through renewable energy sources and also provides consultancy services in this regard.
Its shares were trading at ₹ 344.75 apiece a year ago and closed at ₹ 907.45 apiece on Thursday, giving multibagger returns of 163%. Therefore, if an investor had invested ₹ 1 lakh in the company’s shares a year ago, the value of their holdings would have been ₹ 2.63 lakhs today!
Waaree Renewables Technologies has a Piotroski Score of 8.00 and is a small-cap stock with a market capitalization of ₹ 1,889 crores. It has a high return on equity of 32.98% and an ideal debt-to-equity ratio of 0.86. The company’s shares were trading at a price-to-earnings ratio of 37.89 which is significantly higher than the industry P/E of 17.10, indicating that the stock might be overvalued as compared to its peers. This could mean that investors are willing to pay a higher price for the company’s future earnings.
Written by Simran Bafna
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