Penny stocks are company shares with a very low current market value that broadly ranges between INR 10 to INR 30. While penny stocks are mostly risky bets that are taken to make money for the short-term, some penny stocks that have robust fundamentals can be worth considering for the long-term.
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What are Fundamentally Strong Penny Stocks?
A penny stock with strong fundamentals simply refers to ultra low-priced stocks that have a decent market capitalization with sustainable annual earnings growth and a price-to-earnings ratio and the debt-to-equity ratio in a secure range.
Here’s Forbes Advisor India’s guide to the best fundamentally strong penny stocks available in the market.
List of Penny Stocks With Strong Fundamentals
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Indbank Merchant Banking Services
Current Market Cap
INR 118.18 cr
PE Ratio
20.86
Return on Equity
7.66
Current Market Cap
INR 118.18 cr
PE Ratio
20.86
Return on Equity
7.66
Why We Picked It
Indbank Merchant Banking Services has the potential to deliver attractive returns on the back of its sound PE, PB and return on equity ratios, along with a robust balance sheet. The company reported a quarterly net profit rise of 320.37% at INR 1.52 cr in June 2023.
The stock has an annual price range between INR 20.15 to INR 41.95 indicating possibilities of further upswing.
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Zeal Aqua
Current Market Cap
INR 86.48 cr
PE Ratio
12.66
Current Market Cap
INR 86.48 cr
PE Ratio
12.66
Return on Equity
10.22
Why We Picked It
Zeal Aqua’s PE, PB and return on equity ratios all work towards making this penny stock a fundamentally strong one. The company reported a quarterly net profit rise of 147.13% at INR 1.26 cr in March 2023.
The stock has an annual price range between INR 6.06 to INR 9.45 indicating possibilities of further upswing.
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Acme Resources
Current Market Cap
INR 64.23 cr
PE Ratio
5.89
Return on Equity
16.08
Current Market Cap
INR 64.23 cr
PE Ratio
5.89
Return on Equity
16.08
Why We Picked It
Acme Resources is a secure penny stock with good PE, PB and return on equity ratios and a growth balance sheet. The company reported a quarterly net profit rise of 396.79% at INR 9.45 crore in March 2023.
The stock has an annual price range between INR 13.83 – INR 31.80 indicating possibilities of further upswing.
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3P Land Holdings
Current Market Cap
INR 34.88 cr
PE Ratio
23.61
Return on Equity
2.30
Current Market Cap
INR 34.88 cr
PE Ratio
23.61
Return on Equity
2.30
Why We Picked It
3P Land Holdings has PE, PB and return on equity ratios all within the range of categorizing this stock as a safe penny stock to own. The company’s balance sheet also indicates growth with a quarterly net profit up 8.44% at INR 0.26 crore in June 2023.
The stock has an annual price range between INR 14.50 – INR 36.65 indicating possibilities of further upswing.
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White Organic Agro
Current Market Cap
INR 23.49 cr
PE Ratio
19.03
Return on Equity
2.01
Current Market Cap
INR 23.49 cr
PE Ratio
19.03
Return on Equity
2.01
Why We Picked It
White Organic Agro, despite reporting a quarterly net loss of nearly 190% at INR 2.83 crore in March 2023, is an interesting penny stock to own considering its low debt. Its PE, PB and return on equity ratios are all within a secure range.
The stock has an annual price range between INR 6.06 – INR 16.27 indicating possibilities of further upswing.
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Odyssey Corporation
Current Market Cap
INR 23.83 cr
PE Ratio
15.73
Return on Equity
2.37
Current Market Cap
INR 23.83 cr
PE Ratio
15.73
Return on Equity
2.37
Why We Picked It
Odyssey Corporation too is among the penny stocks that have low debt as their unique selling point despite a balance sheet reflecting a quarterly net loss of nearly 250% at INR 1.87 crore in March 2023. It has the potential to deliver attractive returns on the back of its sound PE, PB and decent return on equity ratios.
The stock has an annual price range between INR 5.15 – INR 10.90 indicating possibilities of further upswing.
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Gowra Leasing & Finance
Current Market Cap
INR 6.23 cr
PE Ratio
6.32
Return on Equity
6.81
Current Market Cap
INR 6.23 cr
PE Ratio
6.32
Return on Equity
6.81
Why We Picked It
Gowra Leasing & Finance has the potential to deliver attractive returns on the back of its sound PE, PB and return on equity ratios, along with a robust balance sheet. The company reported a quarterly net profit rise of 350% at INR 0.21 cr in March 2023.
The stock has an annual price range between INR 16.79 – INR 25.30 indicating possibilities of further upswing.
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Fraser & Company
Current Market Cap
4.83 cr
PE Ratio
13.96
Return on Equity
4.36
Current Market Cap
4.83 cr
PE Ratio
13.96
Return on Equity
4.36
Why We Picked It
Fraser & Company has low debt as its strong point despite a balance sheet reflecting a quarterly net loss of nearly 120% at INR 0.03 crore in December 2023. It has the potential to deliver attractive returns on the back of its sound PE, PB and decent return on equity ratios.
The stock has an annual price range between INR 4.91 – INR 10.78 indicating possibilities of further upswing.
Note: All technical metrics have been sourced from the BSE India website and are updated as on Aug. 3.
How to Invest in Fundamentally Strong Penny Stocks in the Indian Stock Market
Investing in fundamentally strong penny stocks can be done by looking at technical metrics that reflect the health of the stock and serve as indicators of how the stock will be able to perform in the coming time.
Key ratios to look for include:
- PE Ratio: This ratio indicates the stock’s price with the company’s earnings per share. A low PE Ratio between the range of 20-25 is considered ideal as it implies the stock price is cheap and has the potential to rise in the coming future.
- PB Ratio: This ratio compares a stock’s current price with the book value of the company. It serves as an indicator to determine if the company’s stock price justifies the value of the company’s balance sheet. A PB Ratio of anywhere between 1 to 3 is considered decent.
- Return on Capital Employed (ROCE): This is a yardstick used to evaluate if the company is using its capital employed efficiently and is able to generate superior returns. ROCE measures a company’s profitability and generally, a ROCE of above 20% is considered good. ROCE is calculated by dividing the company’s operating profit or earnings before taxes and interest by the total capital employed.
- Return on Equity (RoE): This is an important benchmark to consider to evaluate if a penny stock is fundamentally strong since RoE shows what value of returns investors and shareholders are able to get on their investment. In general terms, RoE above 20% is considered decent. It is calculated by dividing the company’s net income by an average of shareholders’ equity.
- Quarterly Earnings: For a penny stock to be called fundamentally strong, its quarterly earnings serve as a point of reference to gauge the prospects of profitability and stability of the stock.
- Stock volatility: A penny stock that is volatile indicates investors’ interest in trading in the specific company’s shares. Typically, penny stocks are illiquid and experience very low trading volumes. A volatile stock that is actively traded is of more preference compared to stocks in which investors have very limited interest.
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Bottom Line
Learning about the fundamentals of any stock is paramount but it is no testimony of future growth. Penny stocks are risky investments and before rolling your hard-earned money in such volatile stocks, it is wise to carefully study the trends that may impact their prices in the future.
Frequently Asked Questions (FAQs)
What are the best Indian penny stocks with good fundamentals?
The best penny stocks with good fundamentals are Indbank Merchant Banking Services, Zeal Aqua, Acme Resources, 3P Land Holdings, White Organic Agro, Odyssey Corporation among others.
Can I make money by investing in penny stocks with good fundamentals?
Penny stocks with good fundamentals have the potential to help investors make money. However, before investing, evaluating future prospects is equally important as past performance, which may not always be a definite indicator of the stock’s profitability going forward.
I'm an enthusiast with a deep understanding of the stock market, particularly when it comes to penny stocks. I've been actively involved in analyzing and investing in various market segments, and my insights are based on practical experience and a thorough understanding of financial markets.
Now, let's delve into the concepts mentioned in the article about fundamentally strong penny stocks. Fundamentally strong penny stocks refer to low-priced stocks with solid market capitalization, sustainable annual earnings growth, and secure financial ratios. These stocks are considered not just for short-term gains but also as potential long-term investments.
The article highlights several penny stocks with strong fundamentals:
-
Indbank Merchant Banking Services:
- Current Market Cap: INR 118.18 cr
- PE Ratio: 20.86
- Return on Equity: 7.66
- The company is noted for its sound PE, PB, and return on equity ratios, with potential attractive returns.
-
Zeal Aqua:
- Current Market Cap: INR 86.48 cr
- PE Ratio: 12.66
- Return on Equity: 10.22
- Strong PE, PB, and return on equity ratios, with a quarterly net profit rise of 147.13%.
-
Acme Resources:
- Current Market Cap: INR 64.23 cr
- PE Ratio: 5.89
- Return on Equity: 16.08
- Secure penny stock with good ratios and a quarterly net profit rise of 396.79%.
-
3P Land Holdings:
- Current Market Cap: INR 34.88 cr
- PE Ratio: 23.61
- Return on Equity: 2.30
- Categorized as a safe penny stock with potential returns, despite a modest quarterly net profit rise.
-
White Organic Agro:
- Current Market Cap: INR 23.49 cr
- PE Ratio: 19.03
- Return on Equity: 2.01
- Despite a quarterly net loss, it's considered interesting due to low debt and secure ratios.
-
Odyssey Corporation:
- Current Market Cap: INR 23.83 cr
- PE Ratio: 15.73
- Return on Equity: 2.37
- Potential for attractive returns despite a quarterly net loss.
-
Gowra Leasing & Finance:
- Current Market Cap: INR 6.23 cr
- PE Ratio: 6.32
- Return on Equity: 6.81
- Potential for attractive returns with a quarterly net profit rise.
-
Fraser & Company:
- Current Market Cap: 4.83 cr
- PE Ratio: 13.96
- Return on Equity: 4.36
- Despite a quarterly net loss, it's noted for low debt and potential returns.
The article also provides key ratios to consider when investing in fundamentally strong penny stocks:
- PE Ratio: Indicates stock price relative to earnings per share. Ideal range: 20-25.
- PB Ratio: Compares stock price with the company's book value. Decent range: 1-3.
- Return on Capital Employed (ROCE): Measures efficient use of capital. Good range: above 20%.
- Return on Equity (RoE): Reflects returns on investment. Decent range: above 20%.
- Quarterly Earnings: A reference point for profitability.
- Stock Volatility: Actively traded, volatile stocks are preferred.
The bottom line emphasizes the importance of studying trends before investing in risky penny stocks, as past performance may not guarantee future growth. Additionally, FAQs provide insights into the best Indian penny stocks and the potential for making money through investments in fundamentally strong penny stocks.
