Why is Aplab Ltd falling/rising?

Recent Price Movement and Market Context

Although Aplab’s stock price rose by ₹0.68 on the day, this gain came against a backdrop of underperformance over multiple time frames. Over the past week, the stock has declined by 6.37%, sharply contrasting with the Sensex’s 0.90% gain. The one-month and year-to-date returns for Aplab stand at -15.68% and -15.12% respectively, both considerably worse than the Sensex’s corresponding declines of -2.84% and -3.46%. Over the last year, the stock has fallen 15.62%, while the Sensex has appreciated by 7.18%. This divergence highlights the stock’s ongoing struggle to keep pace with the broader market.

On the day in question, the Electronics - Components sector gained 2.86%, yet Aplab underperformed its sector peers by 1.77%. The stock remains below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages, signalling a persistent bearish trend despite the short-term bounce.

Investor interest appears to be increasing, with delivery volume on 29 Jan rising by nearly 90% compared to the five-day average, suggesting heightened participation. However, liquidity remains limited, with the stock’s tradable size effectively negligible at zero crore rupees based on 2% of the five-day average traded value.

Fundamental Performance and Profitability

On the positive side, Aplab has reported four consecutive quarters of positive results, with the latest six-month profit after tax (PAT) rising to ₹2.39 crore. The company’s debtors turnover ratio for the half-year period is at a high of 2.93 times, indicating improved efficiency in collecting receivables. These factors may be contributing to the recent uptick in the stock price as investors respond to signs of operational improvement.

Nevertheless, the company’s long-term fundamentals remain weak. Operating profits have contracted at a compound annual growth rate (CAGR) of -15.70% over the past five years, signalling deteriorating core business performance. The firm’s ability to service debt is also concerning, with a high Debt to EBITDA ratio of 15.42 times, reflecting significant leverage and financial risk.

Return on capital employed (ROCE) is negative at -11.6%, underscoring the company’s struggles to generate adequate returns on invested capital. Despite this, the stock trades at a premium valuation, with an enterprise value to capital employed ratio of 2.4, which is elevated relative to peers. This premium valuation is difficult to justify given the company’s weak profitability metrics and negative returns over the past year.

Interestingly, while the stock has declined by 15.62% over the last year, the company’s profits have surged by 281.6%, resulting in a PEG ratio of zero. This disconnect between profit growth and share price performance may reflect investor scepticism about the sustainability of earnings or concerns about balance sheet health.

Shareholding and Market Sentiment

The majority of Aplab’s shares are held by non-institutional investors, which may contribute to higher volatility and less stable demand. The recent rise in delivery volumes suggests some renewed investor interest, possibly driven by the company’s recent positive earnings announcements. However, the stock’s persistent underperformance relative to the market and sector peers indicates that broader investor confidence remains subdued.

In summary, Aplab Ltd’s modest price rise on 30-Jan appears to be a short-term rebound amid a longer-term downtrend. The company’s improving earnings and operational metrics provide some support, but significant concerns around profitability, debt servicing, and valuation continue to weigh on the stock. Investors should weigh these mixed signals carefully when considering exposure to this microcap within the electronics components sector.

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