While it seems like the broader markets are finally forming a base, investors have started looking at potential outperformers as their risk appetite is coming back. From the small-cap space, one stock that you should keep on the watchlist if you are a high risk taker is Uflex Limited (NS:UFLX).
The company is in the business of manufacturing and sale of flexible packaging products, having a market capitalization of INR 2,506 crores. It is one of the cheapest counters in the high-quality small-cap space, with the current TTM P/E ratio of a mere 3.02. The P/B ratio is also less than 1, at 0.37. This stock is a constituent of the Nifty Smallcap 250 index, with a weightage of 0.7%, which is comprised of 250 small caps with strong fundamentals.
Image Description: Daily chart of Uflex with volume bars at the bottom
Image Source: Investing.com
Now coming to the chart, there’s no doubt that the stock is a falling knife, as it has consistently been liquidated from investors’ portfolios for a long time. From the 52-week high of INR 811, the stock is now down to INR 373, reflecting a cut of 54% in almost 7 months. This is the reason I said it is for high risk takers as trying to go long after this sharp cut means going against the trend.
It is a mean reversion trade wherein traders expect the price to revert to its mean after deviating significantly from it. Today, Uflex shares are up 7.69% to INR 373, by 11:40 AM IST and surged to the highest level since 13 March 2023. As it's a highly beaten-down counter, the risk-to-reward ratio from the current levels is quite lucrative.
In case the stock takes a U-turn, then exit levels are quite near, somewhere around the recent 52-week low of INR 338. This low was marked in yesterday’s session. On the upside, the first target that should be watched out for is around INR 430. Above crossing this level, the trend reversal would further be confirmed as the stock will make a higher high.
The volume expansion in today’s session is also worth noting. A total of 1.57 million shares have exchanged hands so far, which is 690% higher than the 10-day average volume of 200K shares, indicating increasing investors’ interest at these lower levels.
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