A trend reversal is seen in this pharma stock after a 70% decline; should you invest?

A trend reversal is seen in this pharma stock after a 70% decline; should you invest?

Indian Market
by 5paisa Research Team Last Updated: 2022-10-28T19:11:17+05:30

After an almost 70% drop, this stock has recently formed a trend reversal pattern. Continue reading to learn more about this stock.

Following the successful expiry of the October 2022 series, the broader markets are still on the rise. In the afternoon session, the Nifty 50 index is trading at the 17,770 level, up by 0.17%, while the sectoral breadth on the BSE was neutral.

Even though the Nifty Pharm index is down 0.84% to 13,115, not all pharma companies are trading in the red. Jubilant Pharmova Limited is one such company that has recently gained traction.

Recent times have not been kind to several pharma companies, like Jubilant Pharmova, which has dropped almost 73% from an all-time high of Rs 1,046.95 in February 2021 to a 52-week low of Rs 281.8 in July 2022. 

The company has been subjected to significant selling pressure in the form of unrelenting liquidation from investors' portfolios, and the price has repeatedly made lower lows throughout this time. However, there are a few positive developments with this counter right now.

For starters, the stock's savage selling has made the values appealing, with the current price-to-earnings ratio of 13.4 compared to the sector's average of 35.98. Even the price-to-book ratio is low at 1.04, compared to the industry average of 4.35. Furthermore, due to the price fall, the dividend yield has been increased to 1.44%.

Second, on the daily charts, the stock is finally showing symptoms of a bottom reversal. The stock stormed beyond its falling trendline resistance in the previous session and comfortably finished above it.

This was a trend-reversal move that might signal the conclusion of its bear run. Although the volume on the breakout was minimal, today's follow-up move and a breach above the previous day's high are increasing confidence in the breakout.

The chance of a counter-trend rally from here should not be ruled out, even if the present 3-month-long trendline breakout is insufficient to stop the year-long bear run. The stock is currently trading 1.68% higher at Rs 354.35 and might rise to Rs 385 in the next weeks.

If this high is exceeded, trust in this remarkable reversal after a 73% drop will grow even stronger. Above Rs 385, the resistance level of roughly Rs 500 would be the place where the stock may see some selling again.

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