Why is JM Financial Ltd falling/rising?

Recent Price Movement and Market Performance

JM Financial’s stock has been under pressure over the past week, declining by 6.58%, which is significantly worse than the Sensex’s 2.55% fall during the same period. Year-to-date, the stock has dropped 7.33%, again underperforming the benchmark index’s 1.93% decline. The stock’s recent two-day losing streak has resulted in a cumulative fall of 5.12%, with the intraday low touching ₹137.90 on 09-Jan. This downward momentum is further underscored by the fact that the weighted average price saw more volume traded near the day’s low, indicating selling pressure.

Technically, JM Financial is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages. This broad-based weakness in technical indicators suggests a bearish sentiment among traders and investors. Additionally, investor participation appears to be waning, with delivery volumes on 08-Jan falling by 2.05% compared to the five-day average, signalling reduced conviction in the stock’s near-term prospects.

Fundamental Strengths Amidst Challenges

Despite the recent price weakness, JM Financial’s fundamentals present a mixed picture. The company reported its highest-ever operating cash flow of ₹5,568.68 crores in the latest fiscal year, signalling strong cash generation capabilities. Profit after tax (PAT) for the latest six months stood at ₹723.81 crores, reflecting a robust growth rate of 79.67%. Furthermore, profit before tax excluding other income for the quarter surged by 149.35% to ₹331.39 crores, highlighting operational improvements.

JM Financial’s return on equity (ROE) of 11.1% and a price-to-book value of 1.3 suggest an attractive valuation relative to its earnings and net asset base. The stock has also outperformed the BSE500 index consistently over the last three years, delivering a 96.05% return compared to the benchmark’s 37.58%. Over the past year, the stock has generated a 13.14% return, outperforming the Sensex’s 7.67% gain.

Institutional investors hold a significant 23.99% stake in the company, indicating confidence from well-informed market participants who typically conduct thorough fundamental analysis before investing.

Long-Term Growth Concerns Weighing on Sentiment

However, the stock’s recent decline can be attributed to concerns over JM Financial’s slower long-term growth. Net sales have expanded at a modest annual rate of 5.69%, while operating profit growth has been even more subdued at 3.73%. This sluggish growth contrasts with the company’s strong cash flow and profit growth in recent periods, raising questions about sustainability.

Moreover, despite the stock’s positive returns over the last year, its profits have fallen by 12.1%, which may be unsettling for investors seeking consistent earnings growth. The premium valuation relative to peers could also be a factor prompting profit-taking, especially in a market environment where investors are increasingly cautious about growth prospects.

Conclusion: Balancing Strengths and Weaknesses

In summary, JM Financial Ltd’s recent share price decline on 09-Jan reflects a complex interplay of factors. While the company boasts strong cash flow, impressive short-term profit growth, and solid institutional backing, its technical weakness and concerns over long-term sales and operating profit growth have weighed on investor sentiment. The stock’s underperformance relative to the broader market and its peers in recent weeks suggests caution among investors, who may be reassessing the premium valuation in light of mixed earnings trends.

For investors, the key consideration remains whether JM Financial can sustain its recent profit momentum and translate it into stronger top-line growth. Until then, the stock may continue to face pressure despite its attractive valuation metrics and historical outperformance.

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 →