Long-Term Bottom Formation: Stock Shows 30% Upside Potential!

  • Stock Market Analysis
  • Editors Pick

The IT space is trading in the red zone with the Nifty IT index falling 0.41% to 30,286 by 3:16 PM IST. However, not all IT stocks are giving pain to investors and one counter that’s looking to deliver handsome returns in the next few months is Zensar Technologies Limited (NS: ZENT ), which gained 5.44% to INR 245.3 in today’s session.

It is a small-cap IT company with a market capitalization of INR 5,322 crores. In Q3 FY23, the company reported a revenue of INR 1,223.5 crores, which was a slight 3.1% QoQ decline while net income jumped by a noticeable 34.6% to INR 76.5 crores on the back of an improvement in EBITDA. The company’s EPS (earnings per share) rose to INR 3.38, the highest since the March 2022 quarter.

Image Description: Weekly chart of Zensar Technologies with the RSI at the bottom

Image Source: Investing.com

Some of the significant wins for the reported period were - Application services for a British private bank, a leading e-commerce and online gaming software company in South Africa, and a global non-profit organization. On the shareholding front, FIIs were seen increasing their stake in the company, from 9.18% in the September 2022 quarter to 10.75% in the reported period.

The stake increase could also be due to a steep decline in the share price of Zensar Technologies as depicted by a negative return of 42.1% in the last one year. This sharp fall in the stock is finally coming to an end and the abating selling pressure can clearly be seen via the price action on the chart.

Since August last year, the stock has more or less been trading in a sideways range which is a general behavior after a prolonged decline. This sideways move, also referred to as a consolidation zone is technically an accumulation phase where astute investors try to get in and their heavy demand starts to outstrip the supply. This is the reason that the stock eventually halts its downtrend and starts to trade sideways as demand starts to match the supply.

Now the stock is coming out of this accumulation phase and is ready to start its up move. Another interesting development in the favor of bulls is the formation of a bullish divergence on the weekly chart which is a healthy sign of a trend reversal. As both these reversal signals are coming on the weekly chart, investors should know that it’s a bit long-term analysis and the upside target of around INR 320 can take its own sweet time to come.

As per Investing Pro’s proprietary valuation model based on P/E multiple, the fair value of the stock is around INR 334.

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    Good Artical Sir Thanks.
    Like 1
  • AK Trading Academy Palanivel @AK Trading Academy Palanivel
    you are right sir, I also cross checked once. it will move 230 to 290 range.
    Like 2
  • Bhuwan Sharma @Bhuwan Sharma
    great analysis Sir.
    Like 4
    • Aayush Khanna @Aayush Khanna
      Thanks, Bhuwan.
      Like 0
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