This penny stock returned 2474% in 3 years, should you invest?

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The shares of Royal India Corporation rose 2474% in 3 years, soared to Rs 23.95, hitting a 52-week high. Since last it was in the single digits, it only sees the upper circuit; and every month of 2024 is a month of positive (absolute) returns. Although, its trading under ESM: Stage 2 and GSM Stage 0.

In the long run, penny stock Royal India Corporation has given bumper returns to its investors. The scrip has surged 2474 percent in the last three years from ₹0.93 on May 2021 and now trades at its 52-week high of ₹23.95. The Upper Circuit of 2 percent has been hitting on 14/3 since the stock Below are the sessions in which stock has given positive returns or negative returns this year till date. Royal India has ended above in all the 5 months of the current financial year. After a 47.5 percent rise in April, sales soared 39 percent in March, 49 percent in February and 35.6 percent in January for a 45 percent advance in May.

In the last five years too, the stock has yielded multi-bagger returns, rallying 1518 percent from ₹1.48 in May 2019. Even though it gained only 6 percent MTD, within one-year, it has zoomed 508 percent and YTD, rose 502 percent. But stock has been quoting under ESM: Stage 2 and GSM Stage 0.

What is ESM?

Enhanced Surveillance Measure (ESM) is a regulatory tool by NSE in India. It provides for monitoring and surveillance of listed companies to safeguard interest of investors and to maintain market integrity. Being Under Stage I; where in the trading of the securities is done in a trade-for-trade basis with 5 percent / 2 percent circuit breaker and so on. The trading session under Stage II shall be conducted only once a week, every Monday, and the surveillance action permits the trading on all trading days under Periodic Call Auctions (till the end of the last trading day) with Trade for Trade settlement and a 2% Price Band. Before this stage trading could be done only once a week.

What is GSM?

Graded Surveillance Measures (GSM) are a risk management framework that corroborates prices and the demand on an ongoing basis in lieu of financial health and fundamentals of the company to address market anomalies. This system grade companies in order to tell investors that whether stock price manipulation is going to happen. The regulator takes these actions when it believes extraordinary changes in share prices could be a sign that a company is a “shell” company that has simply been set up to artificially inflate the value of its stock. This gives investors ideas of which stocks may not be worth investing in because of these inconsistencies.

Royal India Corporation Company profile :

Royal India Corporation Limited engages in the wholesale trading of gold bullion, plain gold jewelry, gold coins, and medallions in India. Royal India Corporation Ltd. was incorporated in 1994 and is based in Mumbai, India. The company was formerly known as Natraj Financial & Services Limited and changed its name to Royal India Corporation Limited in October 2006. It was established in the year 1984 and is headquartered in Mumbai, India.

Royal India Corporation Results :

The company swung to net loss of₹3.74 crore for the quarter under review as compared to net profit of ₹4.94 crore in the same quarter last year. Its total income plunged 66.5 percent YoY to ₹9.86 crore in the quarter under review from ₹29.49 crore in the same quarter last year. On a sequential basis, the company’s net loss widened from ₹1.57 crore in the preceding September 2023 quarter (Q2FY24) But its revenue has soared by 67.4 per cent to Rs 5.89 crore from Rs 3.52 crore QoQ 24Brokerage view

The leading domestic brokerage house, ICICI Direct, believes that the business of Royal India Corporation demonstrates strong momentum with stock price keeping above short, medium and long-term moving averages. Yes, the stock hit a new 52-week high today too. Moreover, the company has been able to effectively make money from its assets, leading to an improving Return on Assets (ROA) over the last two years.

While its Weaknesses as per the brokerage are: Red Flag : High-interest repayment vs earnings Degrowth in quarterly revenue, profit in the last couple of quarters ( YoY) Declining profits every quarter for last 2 quarters

Associating with stocks of small companies with low market capitalisation allows you to grow richer, due to the cheaper stock prices the latter has. But this investment way has big dangers. Furthermore, these stocks are usually less liquid, meaning there is less trading taking place than in their larger counterparts. This is in addition to the lack of the burden of strict financial reporting and review generally not seen in bigger giants, along with them being susceptible to price manipulation and all forms of fraudulent acts. More volatile trading in small company stocks, which raises the risks for investors because of the constrained liquidity and decreased oversight.

Achieving this, a mindset of thorough research and prudent risk management are necessary when investing in these kinds of stocks to help executives navigate risks, avoid pitfalls, and prevent any potential loss.

Disclaimer: This story is for educational purposes only. Please speak to an investment advisor before making any investment decisions.

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