Market Cap: 10 Stocks with Fixed Assets Value Above Market Cap: Time to Buy or Avoid?

The Indian market retested crucial support levels in June as selling by foreign investors has dragged the Nifty50 down more than 5% so far in 2022 and many large and mid-cap stocks have fallen double digits .

In a bid to find value from the current drop, we’ve put together a list of 10 Trendlyne stocks that are in the affordable PE range with fixed asset values ​​above their market capitalization and without an equity ratio. lower indebtedness. than 1.

Businesses use fixed assets to generate revenue over the long term. It appears on the balance sheet at net book value less amortization and any impairment.



The top 10 filtered stocks where the asset value is greater than the current market capitalization include names like , , , , , , etc., among others.

Can all stocks be classified as value bets? Maybe not, experts suggest.

“Most of the companies on the list are cyclical in nature. These companies have over the years added strengths; however, they were unable to transpire these assets to achieve meaningful ROCE (return on capital employed),” said Siddhart Oberoi, Founder of Prudent Equity.

Return on Capital Employed (RoCE) refers to the amount of revenue or profit that a company generates when considering not only equity, but also debt and other sources of funds. Read also

“Among the whole list, only Tata Steel and

have been able to achieve a double-digit ROCE, this too thanks to the rise in steel prices over the past two years. Before that, even their return on capital remained abysmal,” he said.

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At least 7 out of 10 stocks have fallen as much as 39% so far in 2022. In the traditional sense, a company is considered undervalued if the market value of the company is lower than fixed assets.

However, in reality, this is not always true because net realizable value or market value can be significantly different from book value.

“You can’t determine the correct market value unless the business sells some of its assets or goes into liquidation. In the event of liquidation, historically in India, fixed assets are sold at a discount or below market value,” Punit Patni, Equity Research Analyst,

said.

“In short, this type of data is only relevant for companies with tradable assets or whose market value can be easily determined, eg banks, NBFCs,” he said.

What are the other parameters to follow?

Companies with fixed assets greater than market capitalization do not necessarily imply that these companies are undervalued. Investors should use other metrics to evaluate a company before making a buy or sell decision, experts suggest.

“While having more assets is a benefit for any business because assets have the ability to generate income, it is also important to look at the liabilities of the business,” said Rohit Khatri, AVP – Fundamental Research,

Brokerage Ltd, said.

“The prudent approach would be to look at the book value of the business, i.e. the assets less the liabilities, which will give a true and fair view of the financial situation of the business,” he said. declared.

Khatri further added that a prima facie assessment suggests that most of these companies operate in capital-intensive activities that would require higher capital expenditures.

Patni of Swastika Investmart Ltd recommends investors to understand fundamentals, quality of management, competitive landscape, cash flow, return ratios such as ROCE, ROE, ROIC, etc., and leverage ratios and leverage.

What should investors do?

Investors need to analyze various parameters highlighted above to make a buy or sell decision. Most stocks could remain in consolidation mode, but some of them like Tata Steel,

HPCL and Birla Corp could be a long term game.

It is important to track how the business uses its assets using the fixed asset turnover rate. An expansion ratio implies that the business is able to generate higher revenues without changes in fixed assets, experts suggest.

“The usual checklist of industry growth prospects, company fundamentals and valuations is important to follow before investing. Of the aforementioned stocks, most belong to highly cyclical sectors and have experienced a decent correction due to growth or margin issues,” said Khatri of Religare Broking Ltd.

“Therefore, while we are constructive on some names like Tata Steel, BPCL, HPCL and Birla Corp, short-term underperformance cannot be ruled out,” he said.

(Disclaimer: The recommendations, suggestions, views and opinions given by the experts belong to them. These do not represent the views of Economic Times)