Searching for small-cap value stocks? Take a peek at this list


by 5paisa Research Team Last Updated: Dec 10, 2021, 03:45 PM IST

In a bull market, it’s easy to be swayed by a herd mentality to look for growth stocks. But as concerns of valuations in the market grow, investors start looking at alternative investment themes such as value investing.

On the flip side, when the markets are flush with liquidity, it is not easy to identify value stocks, which refers to companies that appear to trade at a price below what is suggested by its fundamentals such as earnings, revenue and dividends.

One way to gauge a set of such companies is to scan them through the lens of the Piotroski score, named after Chicago accounting professor Joseph Piotroski, who created the scale. The parameter covers aspects of profitability, leverage, liquidity, source of funds and operating efficiency.

Companies are awarded scores for sub-parameters under each of these three broad heads including one point each for positive net income, positive return on assets (ROA), positive operating cash flow and cash flow from operations being greater than net income.

It also captures lower amount of long-term debt in the current period compared to the previous year and, similarly, higher current ratio this year and whether or not any new shares were issued in the last year to get a picture of dilution.

The score also picks one point each for a higher gross margin and higher asset turnover ratio compared to the previous year.

In total, stocks are weighed on these nine sub-metrics with higher score making it a more attractive value stock.

Typically, stocks with scores of 8-9 are considered the most lucrative from a value investing theme.

Based on this criterion, we get a list of around 265 small-cap value stocks that score high on the Piotroski’s scale currently.

We filter it further to look at firms with market value between Rs 1,000 crore and Rs 5,000 crore.

This list includes Greenpanel, Sequent Scientific, Deepak Fertilisers, Jamna Auto, PDS Multinational, Hathway Cable, Tata Coffee, Indoco Remedies, Globus Spirits, Godawari Power, Somany Ceramics and Man Infra.

Others in the club include Dhanuka Agritech, Tata Steel Long Products, JK Tyre, Rupa & Company, Surya Roshni, PTC India, GE T&D, HIL, Dalmia Bharat Sugar, Ion Exchange, Bajaj Consumer Care, Tata Metaliks.

Out of these, around two dozen companies are perched at the top with a score of 9 in the Piotroski scale. These include Greenpanel, Godawari Power, Somany Ceramics, Rupa & Company, GE T&D, HIL, Somany Home, Dollar Industries, Indian Metals, Hester Biosciences, Dhampur Sugar, Heritage Foods, JSW Ispat Special, Butterfly Gandhimathi, Yasho Industries, Nitin Spinners, Dwarikesh Sugar, Sunflag Iron, Gulshan Polyols, Shakti Pumps, Ambika Cotton Mills, Xpro India and Kabra Extrusion.

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SENSEX
54,573.16
254.69 (0.47%)
Nifty 50
16,332.20
72.90 (0.45%)
Nifty Bank
34,500.25
198.35 (0.58%)

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