Alstone Textiles, a little-known textile stock trading below Rs. 1, has been on an epic run recently, rocketing over 30% in just the last 5 trading days fueled by upper circuits.
With the stock hitting fresh 8-month highs, should investors take the rally seriously or is it a speculative frenzy in a penny stock? Let’s analyze.
A Momentum-Driven Rally
Alstone Textiles closed at Rs. 0.96 on Friday, a significant jump from Rs. 0.70 just a week back.
Besides the eye-popping 37% returns for investors in mere 5 trading sessions, equally stunning has been the explosion in trading volumes indicating heightened investor interest.
In the last one month alone, Alstone Textiles share price has zoomed over 55%. However, the 6-month gains are relatively modest at 57% as the stock has been subdued for most of 2022.
In fact, Alstone Textiles has given zero returns to investors year-to-date. The recent rally reversal seems to be purely momentum-driven.
China+1 Policy Driving Investor Interest
The optimism around Alstone Textiles stems from the China+1 policy being adopted by global apparel and textile brands in the post-pandemic era.
With over-dependence on China being increasingly seen as a supply chain risk, many brands are looking to diversify sourcing from countries like India and Vietnam.
With India holding strong potential in areas like cotton, fabric, yarn and apparel manufacturing, the Indian textile sector stands to gain handsomely. Speculative interest sensing this China+1 opportunity seems to be driving up stocks like Alstone Textiles.
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Financials Yet to Catch Up
While the underlying textile industry dynamics seem positive, Alstone Textiles’ own financial performance does not mirror the same. Revenue has largely been flat over the last 3 years while net profits have oscillated.
For FY22, Alstone Textiles’ revenue grew merely 4% year-on-year to Rs. 144 crores while net profit declined by 52% to Rs. 2.3 crores. Q2FY23 results announced last month showed net loss doubling to Rs. 1.3 crores.
Clearly, financial traction has been missing. The ultra-microcap textile company has a lot of catching up to do business-wise to justify even the currently rallied market cap of Rs. 160 crores. Investors mesmerized by the momentum need to exercise caution.
So is it a Buy or Speculative Punt?
Alstone Textiles recent price action exhibits typical characteristics of a penny stock rally – fast pace, high volatility and euphoric volumes indicating speculative interest. Fundamentals are yet to catch up to its market cap after the strong surge.
Long-term investors would be better off looking at other fundamentally strong textile companies to ride the China+1 wave.
In Alstone Textiles case in particular, the risk-reward does not favor investments based on a broader industry trend. Short-term traders can still play the momentum but need to book profits at the right moments.