Multibagger! Penny stock Suncity Synthetics gives over 280% returns in less than 3 months; should you invest?

Penny stock Suncity Synthetics has delivered exceptional returns to its investors both in the short and long term. The stock has provided investors with exponential returns, surging over 282 percent in just little over 2 months since April 2024, from ₹7.7 at the end of March 2024.

Overall, year-to-date, the stock has surged over 211 percent, while over the past year, it has soared by 359 percent.

After a 130.64 percent rally in May and a 44.55 percent jump in April, the stock has advanced 12.5 percent in June so far. However, it experienced losses of 18 percent in March and 16.8 percent in February. In January, the stock had gained 19.5 percent.

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Over the long term, spanning the last 3 years, the stock surged over 702 percent from ₹3.60 in June 2021. In the last 5 years, it has climbed over 518 percent from ₹4.67 in June 2019.

The stock hit its record high of ₹29.45 in intra-day deals today. It has soared 462 percent from its 52-week low of ₹5.24, hit on July 7, 2023.

It is important to note that the stock is currently trading under GSM: Stage 0 as well as under ESM: Stage 2.

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What is GSM?

The Graded Surveillance Measure (GSM) framework was introduced by SEBI in collaboration with the exchanges. Its primary objective was to strengthen market integrity and protect the interests of investors. The list of stocks moved to GSM can be tracked on NSE.

What is ESM?

The Enhanced Surveillance Measure (ESM) is a regulatory framework implemented by the National Stock Exchange (NSE) in India. It aims to enhance monitoring and surveillance of listed companies to ensure investor protection and market integrity.

Under Stage I, the trading of the securities is settled through a trade-for-trade mechanism with a price band of 5 percent, or 2 percent.

Under Stage II, the surveillance action permits trading on all trading days under periodic call auctions with trade-for-trade settlement and a 2 percent price band. Earlier this stage permitted trading just once a week.

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About the firm

Suncity Synthetics Limited produces synthetic fibers in India. It manufactures polyester staple fibers and PET/PA6 granules; regenerated polyester fibers primarily used in clothing fabrics, home furnishing, automobile furnishing, nonwoven carpets, nonwoven carry bags, etc.; and nylon granules. The company was incorporated in 1988 and is headquartered in Surat, India.

Earnings

In the March quarter (Q4FY24), the net profit of the firm jumped over 62 percent year-on-year (YoY) to ₹41.44 lakh from ₹25.53 lakh in the same quarter last year. Meanwhile, its total revenue rose 14 percent YoY to ₹118.21 lakh in the quarter under review as against ₹103.77 lakh in the same quarter last year.

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Brokerage view

According to ICICI Direct, Suncity Synthetics exhibits notable strengths, including strong momentum, with its price consistently exceeding short, medium, and long-term moving averages. Additionally, the company has high TTM (trailing 12 months) EPS (earnings per share) growth.

Meanwhile, its weaknesses, as per the brokerage are:

- Poor cash generated from core business - Declining cash flow from operations for the last 2 years

- Rising other income, and low operating income

- Low Piotroski Score: Company with weak financials

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Investing in small-cap stocks with lower market capitalisation can promise considerable gains due to their affordable stock prices. However, this avenue entails notable risks. Small-cap stocks often suffer from limited liquidity, leading to fewer transactions compared to larger firms. Moreover, they commonly lack stringent financial reporting and oversight, rendering them susceptible to price manipulation and fraud.

Due to their restricted liquidity and oversight, small-cap stocks frequently showcase heightened volatility, amplifying risks for investors. Therefore, conducting comprehensive research and implementing prudent risk management strategies are crucial to navigating the uncertainties linked with these stocks and minimising potential losses.

Disclaimer: This story is for educational purposes only. Please speak to an investment advisor before making any investment decisions.