Why is Brightcom Stock Rising? Right Time to Buy it or Avoid?

Brightcom Group offers Digital Advertising solutions to big companies like Airtel, Coca-Cola (NYSE:KO), Hyundai Motors, ICICI Bank (NS:ICBK), LIC, Maruti (NS:MRTI), etc., and online publishers like Facebook (NASDAQ:FB), LinkedIn, MSN, Twitter (NYSE:TWTR), and Yahoo! (NASDAQ:AABA) The company also offers IoT-based solutions to businesses across the globe.

For many years, the company is reporting strong growth in their Revenues and Profits. Earnings have grown at nearly 25% CAGR over the last 10 years. ROE and ROCE ratios stood at double digits. Debt on the balance sheet was also declining in the company. As of now, Brightcom is a zero-debt company!

However, the share price of Brightcom never reacted to these positive developments and expanded the size of the business. But now, it has fulfilled what was missing from the company i.e. outperformance and a rising share price. Interestingly, this thing has happened in just a few months!

The stock was trading around Rs 6.70 per share on May 31st, 2021. Since then, the share of the company has seen a marvellous rally. Shareholders would have hardly expected that they would get all the rallies in less than 1 year. 

Today, Brightcom is trading around Rs 160 (as of December 10th, 2021). From the beginning of the current year, the stock has given almost 2,200% returns to its shareholders. 1 lakh invested in the share on January 1st or May 31st (as the share price was the same on both dates, Rs 6.7) would have grown to nearly 20 lakh today.

So, what has happened to Brightcom Group suddenly?

In Mid 2021, the company issued bonus shares to its shareholders. Over split, the bonus is a more beneficial thing for the shareholders. They issued 1 bonus share for every 4 shares held by the shareholders. That was the first thing the company did in 2021.

Recently, Brightcom Group has issued fresh equity shares to foreign and other investors. Nearly 14 crore shares were issued to them at Rs 37.7 for a total consideration of Rs 530 crore. The market capitalization of Brightcom at the end of 2020 was only Rs 360 crore! So, it is also boosting the share price as significant fundraising has taken place.

In addition to the fresh offering of equity shares, the company also issued warrants amounting to 1.5 crores to Shankar Sharma (vice-chairman of First Global) at 37.7 rupees These warrants can be converted into the same quantity of equity shares.

Overall, Brightcom has raised a lot of money which will be used for funding expansion plans (through both organic and inorganic routes).

Brightcom has been a good growing company and now, many new major investors have joined the list of the company’s shareholders. That is a good thing and is going to be beneficial in the long term.

Can Brightcom stock continue to climb?

No doubt, valuations were attractive when the shares of Brightcom were available below Rs 10. But at that time, there were two concerns in the company.

1) Low Promoter Holding!

Promoters were not holding even 40% of the shares in their company when the market capitalization was too small.

2) No Reward to Shareholder!

The company was earning great profits, and cash flows were also good. The company's reserves had also grown excessively. But management did nothing to nicely reward shareholders.

Since well-known investors have entered Brightcom stock, market participants might be overlooking low promoter holding concerns. Brightcom has also issued bonus shares recently, which is a good step towards rewarding shareholders.

Before the recent rally, the company was heavily undervalued in the stock market. Therefore, at current levels, the company still doesn’t look overvalued or expensive after a tall Buying.

However, as the stock has seen a big run-up, the chances of any Big correction will always be there in the share price.