Mid Size...Excellent Growth
Delve deep into two mid-cap stocks that show promise in terms of growth investing
By Danish Khanna | Mar 29, 2019
When it comes to selecting stocks, people mostly face the dilemma of where to invest their hard-earned money. And for good reasons, too. India is home to more than 8,000 listed companies. Hence, this confusion is quite obvious.
In the world of investments, stocks are selected based on two parameters-Growth and Value. Growth investing lays emphasis on the companies that have delivered high growth and are expected to deliver better earnings in the coming time. Value investing, on the other hand, focuses on the stocks that have fallen out of investors' favour but still have strong fundamentals.
In growth investing, stocks hold the potential to grow significantly as compared to those who have already realized their growth potentials. Particularly, small- and mid-cap stocks fall under this ambit. In this article, we will delve into two mid-cap stocks that perform exceptionally in terms of growth investing.
Over the past three years, these stocks maintained an exemplary track record of growth both in sales and earnings. Further, they rewarded their investors with an ROE of at least 15 per cent, while maintaining a low debt to equity ratio. The following filters enabled us to identify these two mid-cap stocks.
- Market Cap more than 6,000 cr. and less than 25,000 cr.
- 3Y TTM Sales growth >20 per cent
- 3Y TTM EPS growth >20 per cent
- ROE>15 per cent in each of the last 3 years
- Debt/equity ratio <1
- PEG ratio of less than 1
- Positive cash flow from operations in the past 3 years
Here are these two companies.
A leader in global IT solutions, its clientele spans across the world. It has specialisation in Analytics, Automation, Cloud and Digital services for the industries like Banking and Financial Services, Insurance and Travel & Transportation. Around half of its business is based out in the Americas, while a majority of its revenues come from Application Development and Maintenance services.
In the past three years, the profit of this IT firm grew at a rate of 36 per cent annually, while its ROE was pegged at 18 per cent in FY18. As of December 2018, the company's revenue and profit grew at 18.5 per cent and 28.5 per cent, respectively, year-on-year. When it comes to its profit margins, it has shown steady improvement on the back of sales growth and increasing contribution from its high-margin digital segment. As of December 2018, its order book was valued at $375 million, to be executed over the next 12 months.
Incorporated in 1958 and headquartered at Manesar, Haryana, the company is among the global leaders in the auto component segment. Although its product portfolio is quite diversified, a majority of its revenue comes from Switches, Lights and Horns. Leveraging its diversified product portfolio, it caters to all the major two- and four-wheeler OEMs in India.
Keeping pace with a rapidly changing business landscape, the company has evolved over the years through organic and inorganic diversifications, thereby strengthening its presence in India and across the world. Further, to deepen its product line, the company has also been upfront on CapEx for quite some time. It has already invested Rs. 20 crore in the die casting business.
The company is likely to benefit from the new safety regulations, to be effective from April 2019 and the implementation of BS6 from April 2020. With these, it will be able to tap into new growth opportunities through JVs with global leaders, thereby increasing its market share.
As of December 2018, the company's revenue grew by approx. 35 per cent CAGR over the past three years. During the same period, its profit after tax grew by 65 per cent on the TTM basis.
In the past three years, its ROE was exceptionally good with an average of 27.48 per cent. As of March 31, 2018, its ROE stood at 28.69 per cent.
Disclosure: The companies mentioned above are not our recommendations. If you intend to invest in any of them, do thorough research.
Value Research Stock Advisor now has 36 stock recommendations and new ones are added every month. Thousands of our members are using the current market conditions to buy great stocks at low prices.
Membership of this premium service is available at a 40% to 60% discount.