Breakout: Bulls Eyeing this Small Cap for Some ‘Quick Gains’!

  • Market Overview

Similar to yesterday’s session, despite a market-wide selling, the small companies seem to be showing a higher resilience against the sell-off, than their larger peers. The NIFTY Smallcap 100 index is up 0.02% to 9,939, by 2:03 PM IST, and one counter that’s looking good on the daily charts is Ambika Cotton Mills Ltd (NS: AMBK ).

It is a small-cap textile stock with a market capitalization of INR 872 crores. The company operates through two business segments - textiles and windmills and currently trades at a lucrative TTM P/E ratio of 6.21.

Ambika Cotton

Image Description: Daily chart of Ambika Cotton Mills with volume bars at the bottom

Image Source: Investing.com

After a sharp rally from the beginning of April 2023, the stock took a breather and turned sideways. This consolidation phase lasted for more than a month. The volatility contraction during this resting phase can also be seen via a falling 10-ATR value (the red line at the bottom of the chart).

Today, the stock surged past the resistance of this range, gaining 2.63% to INR 1,563, retracing a bit from the day’s high of INR 1,600. This breakout was also accompanied by a volume expansion, with a total NSE-recorded figure of 28.1K shares so far, which is the highest one-day volume since 31 March 2023. If the stock manages to close above INR 1,550, then traders can assume that the breakout has been confirmed and long opportunities can then be explored.

Looking at the past 1-month range, the stock can rally to a level of INR 1,650 which is not a very lucrative target but might come in the next couple of days. As the support of the range is clearly established, it is an ideal place to put stop loss orders in case the stock takes a U-turn and veers from its upward direction. This level is at around INR 1,485.

On fundamental grounds, the stock can easily rally to INR 1,970, giving it a potential of around 26%. This is the fair value as per the average of 7 InvestingPro proprietary models. The EV/EBIT multiple models are even gauging an upside between INR 2,096 - INR 2,259 (37% - 48% upside).

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  • Hormaz Nagarwala @Hormaz Nagarwala
    Best script Gem of Textile. Add in portfolio.
    Like 1
  • Sandip Das @Sandip Das
    Long wick... not good breakout
    Like 0
  • kathirvel kathirvel @kathirvel kathirvel
    good for mid term..
    Like 0
  • ravibabu avvari @ravibabu avvari
    Looks like Flag & Pole Break out
    Like 0

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