A Multibagger in the Making: Breakout from 52-Week Low Amid 80% Fall

  • Stock Market Analysis

There are many stocks that corrected from their respective 52-week highs this year on the back of heightened volatility amid geopolitical tensions and concerns over soaring inflation. Pharma is one of the sectors that is seeing investors fleeing away this year, probably because the Covid-19 situation has eased now which was a trigger for a gigantic rally in this pack.

One stock from the Pharma space that has taken a heavy beating this year is Solara Active Pharma Sciences Ltd (NS: SOLA ). It is a pharmaceutical company with a market capitalization of INR 1,580 crores. The stock is a high-beta counter and is around 3.51 times more volatile than the Nifty 50

One of the triggers for a massive fall in the company’s share price this year was its lackluster FY22 performance. After reporting its highest consolidated annual profit of INR 221.4 crores in FY21, the company turned to losses, reporting a net loss of INR 58.15 crores in FY22, that's a decline of around 126.2% in the net income, however, the revenue fell only 21.7% during the same period. The EBITDA fall from INR 414.64 crores to INR 96.5 crores, depicting over a 76% plunge was the primary reason for this wipeout of profits. The margins for the year also squeezed from 13.45% in FY21 to -4.51% in FY22.

Image Description: Daily chart of Solara Active Pharma Sciences

Image Source: Investing.com

However, the market has probably discounted this noticeable drop in performance with a ruthless 81% fall in the share price of Solara Active Pharma Sciences, in less than one year. The 52-week high of the stock is INR 1,749, touched in September 2021 while it tanked to a 52-week low of INR 320 in June 2022. Investors have been relentlessly liquidating their holdings for one year which seems to be abating now.

It seems like all the weak hands are now out of the stock, leaving fewer bears for further liquidation. At these mouth-watering levels, bulls are finally making an attempt to charge higher. On Thursday, the stock rallied 11.86% to INR 439.2, surpassing its immediate resistance of INR 400 with ease. At this rate, the stock has already recovered around 37% from the 52-week low which would probably mark the low as an intermediate bottom, at least. 

On the upside, there is virtually no resistance till the nearest level of INR 600. However, even this is also not a strong resistance and it won’t be surprising if the stock more than doubles from here fairly quickly, considering an almost vertical fall in the last one year. On the downside, the lowest low of INR 320 is the support level but even below this level, a fresh wave of selling is not expected as the stock is already down over 81% from the highs. 

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