Why is Gokaldas Exports falling/rising?

Recent Price Performance and Market Comparison

Gokaldas Exports has underperformed both its sector and broader market indices in recent trading sessions. Over the past week, the stock has declined by 6.83%, contrasting sharply with the Sensex’s modest gain of 0.65%. This negative momentum has extended over two consecutive days, with the stock losing 7.33% in that period alone. Intraday trading on 02-Dec saw the stock touch a low of ₹860.20, reflecting persistent selling pressure. Notably, the weighted average price indicates that a larger volume of shares exchanged hands near the day’s low, signalling bearish investor behaviour.

Despite the stock trading above its 50-day, 100-day, and 200-day moving averages, it remains below its 5-day and 20-day averages, suggesting short-term weakness amid longer-term support levels. Investor participation has increased, with delivery volumes rising by 8.63% on 01-Dec compared to the five-day average, indicating heightened activity but predominantly on the sell side.

Fundamental Challenges Impacting the Stock

While Gokaldas Exports demonstrates robust long-term growth, with net sales expanding at an annual rate of 25.78% and operating profit growth of 44.70%, recent quarterly results have raised concerns. The company’s quarterly profit after tax (PAT) has plummeted by 71.3% to ₹8.08 crore, signalling a sharp contraction in profitability. Additionally, operating cash flow for the year stands at a relatively low ₹77.58 crore, which may constrain operational flexibility.

The operating profit to interest coverage ratio has also declined to 2.90 times, the lowest level recorded, indicating reduced cushion to service interest expenses. Although the company maintains a low Debt to EBITDA ratio of 1.09 times, suggesting manageable leverage, these profitability pressures have contributed to investor caution.

Valuation metrics further compound the stock’s challenges. With a return on capital employed (ROCE) of 8.6%, the stock is perceived as expensive, trading at an enterprise value to capital employed ratio of 2.5. This premium valuation is not fully supported by recent earnings trends, as evidenced by a price-to-earnings-to-growth (PEG) ratio of 2.9. Despite profits rising by 17.5% over the past year, the stock has generated a negative return of 8.49%, underperforming the broader market indices, including the BSE500, which returned 3.93% in the same period.

Promoter Share Pledging Adds Downside Risk

Another significant factor exerting downward pressure on the stock is the high level of promoter share pledging. Approximately 96.28% of promoter shares are pledged, a situation that often leads to forced selling in declining markets. This elevated pledge percentage increases the risk of further price declines, as any adverse market movement could trigger margin calls and subsequent liquidation of pledged shares.

Long-Term Performance Context

Despite recent setbacks, Gokaldas Exports has delivered impressive returns over the longer term, with a three-year gain of 122.12% and a remarkable five-year return exceeding 1000%. This outperformance relative to the Sensex’s 35.42% and 90.82% gains over the same periods respectively, highlights the company’s growth potential. However, the current valuation and short-term earnings weakness have overshadowed these positives, leading to the recent share price decline.

In summary, the fall in Gokaldas Exports’ share price on 02-Dec is primarily driven by disappointing quarterly profitability, expensive valuation metrics, and the risk posed by high promoter share pledging. While the company’s long-term fundamentals remain strong, these near-term headwinds have dampened investor enthusiasm, resulting in the stock’s underperformance relative to its sector and broader market indices.

Limited Time Only! Subscribe for Rs. 12,999 and get 1 Year of MojoOne + an Additional Year Completely FREE. Don't miss out on this exclusive offer. Claim Your Free Year →