5 Most Undervalued Small-Cap Stocks To Add To Your Watchlist

5 Most Undervalued Small-Cap Stocks To Add To Your Watchlist

Historically, small-cap stocks have outperformed during times of economic recovery. Looking to invest in the next Amazon, Titan or Bajaj Finserv?

Then you should definitely explore your options in small-cap stocks.

Now you may ask…why are small-cap stocks a good investment?

Historically, small-cap stocks have outperformed during times of economic recovery. This is playing out now as the economy is currently in a revival mode. The full value chain across sectors including small-cap companies are expected to benefit.

Small-cap stocks have been known to generate over 100x return on their original value in some cases. Investors with an appetite to take on some high risk and looking to make multibagger returns may consider investments in small-cap stocks .

So, can 2022 be the year where you focus on building your portfolio of small-cap stocks? Possibly, yes.

To put things into perspective, there are over 4,500 small-cap stocks listed on the Indian stock exchange. If some of them are undervalued , then it is just the icing on the cake.

Here’s a list of the top 5 undervalued smallcap stocks that you should add to your watchlist.

#1 Den Networks

Good news awaits if you are looking to invest in the media and entertainment (M&E) segment as a strong revival is in the offing in the financial year 2022.

Some of the key factors that are propelling the growth are favourable regulations, technological innovations and emerging investment opportunities in the broadcasting and cable TV market.

This puts Den Networks, one of India’s leading cable TV distribution companies, as a strong competitor in the list of most sought-after undervalued smallcap stocks for 2022 to have in your kitty.

It currently has a market capitalisation of ₹ 1,770 crore with its shares trading at ₹ 36.9 apiece -. The price to earnings (PE) stand at a lowly 9.2 whereas the price to book value (PB) ratio is 0.6, well below the M&E industry benchmarks.

Established in 2007 and spearheaded by a seasoned management team, Den Networks is a company poised for long term growth.

With an active expansion plan in place, the company diversified into providing all-India Internet Service Provider (ISP) for broadband internet services. It currently operates across 500+ cities/towns across 13 states in the country.

Strong support from the parent company enabled Den to focus on the next frontier of growth areas. This included regional content creation for Tier 2 and Tier 3 markets.

The goal was to be able to bridge the current demand-supply gap in these regional markets resulting in this positive growth trajectory.

The proof of the pudding lies in the profit growth for Den Networks. In financial year 2021, it skyrocketed to 184.9% despite the disruption of the pandemic. The profit after tax (PAT) of ₹ 2,459 m came from its strong foothold in the Hindi speaking belt.

At the back of a strong balance sheet, Den Networks recorded gross sales of ₹ 1,240 crore and reduced its gross debt from ₹ 2,13.35 crore in the fiscal year 2020 to zero in the financial year 2021.Even though the return on capital employed (ROCE) was low at 2.1% over the past 3 years, the company managed to maintain a healthy position with a current ratio of 4.7. #2 Sandesh Here’s another undervalued small-cap stock from the media and entertainment industry.Established in 1923, Sandesh has a marketcap of ₹ 570 crore. The company is currently Gujarat’s largest and most influential media house.Sandesh shares traded at a high of ₹ 759.6 apiece – with a PE of 7.2 which is well below the 3 year average industry PE ratio of 15.8.The PB ratio stands at 0.6 whereas the industry benchmark is 54.5 over a trailing twelve month period.The company initially started off as a Gujarati daily newspaper. It has subsequently forayed into various other branches of the media and entertainment industry including television channels, magazines, OOH, and digital media.As of March 2022, the company’s promoter holding remains unchanged at 74.8% which has given the company direction to make its digital footprint more robust.The company also improved its EBIDTA from ₹ 8,120 crore to ₹ 12,220 crore in the financial year 2021by improving its return out of treasury operations.Currently, Sandesh has little to no debt on its books and has maintained a healthy liquidity position. A strong financial risk profile marked by a comfortable capital structure indicates healthy profitability in the foreseeable future for the company.Profit growth rose to 53% in the last year which has helped secure a place for Sandesh in our list of top 5 undervalued smallcap stocks. #3 Man Industries India A […]

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