An ideal portfolio should also have a place reserved for small caps. Although the allocation changes with the variation in risk appetite, the higher the risk-bearing capacity, the higher could be the allocation towards small caps and vice versa.
One small-cap that is making strides in its industry is Archidply Industries Ltd (NS:ARCY). The company is in the business of manufacturing plywood, decorative plywood, and laminates and operates through two segments: Wood-based products and Paper-based products. It has also been credited to launch India’s first low formaldehyde emission plywood.
More interestingly, it is a small-cap with a market capitalization of a mere INR 162 crores, but being a small cap, the stock is highly volatile, with roughly 3.66x more volatility compared to the Nifty 50 index. Small-cap stocks have a higher growth potential than their larger peers, and hence are more apt for exponential returns. In the last one year, the stock has delivered a massive return of 179.9%, compared to a negative 2.18% return of the NIFTY Smallcap 100 index in the same period. To further compare with the industry players, Greenply Industries Ltd (NS:GRPL) and Century Plyboards Ltd (NS:CNTP), which are relatively bigger businesses have delivered a return of 5.73% and 67.74% in one year, respectively.
Despite a strong run-up, Archidply is still trading at a lesser valuation than peers. The company’s shares are trading at a P/E of 19.21, compared to Greenply’s 23.68 and Century Plyboards’ 47.11.
Talking about the FY22 performance, the company posted revenue of INR 307.18 crores, which is a high jump of 32.7% over the preceding year’s revenue of INR 231.37 crores. Consequently, the net profit soared by 275.5% to INR 8.45 crores in the same period, which is the highest annual profit the company has recorded yet. Over the last 5 years, Archidply’s net income has grown at a yearly rate of 4.75%, which might seem low, but it is a clear outperformance over the industry’s average of 2.66%.
Image Description: Weekly chart of Archidply Industries with volume bars at the bottom
Image Source: Investing.com
Coming to the chart of Archidply, the stock clearly seems to be heading upwards. The stock had witnessed high selling pressure from the high of INR 130.75 back in 2018 and consistently fell to a low of a mere INR 12. After making a bottom here, the stock started to trend on the upside, making an almost picture-perfect formation of a rounding bottom chart pattern. This is a reversal pattern and reverses a prior downtrend to an uptrend, which is exactly what is happening.
There has already been a decent run-up as the stock has soared from INR 12 in March 2020 to the CMP of INR 81.7. However, there is no resistance present till the level of around INR 100. On the weekly, chart, there is robust support around INR 60, which seems to be the maximum retracement that could occur from here.