Why is Laxmi Organic falling/rising?

Recent Price Performance and Market Comparison

On 26 November, Laxmi Organic’s share price stood at ₹182.50, down by 0.3% or ₹0.55, marking the second consecutive day of losses. Over the past week, the stock has marginally declined by 0.08%, while the Sensex gained 0.50%, highlighting the stock’s underperformance relative to the broader market. More strikingly, the stock has fallen by over 10.6% in the last month, contrasting with a 1.66% rise in the Sensex during the same period.

Year-to-date, Laxmi Organic’s stock has declined by nearly 25%, whereas the Sensex has appreciated by 9.56%. Over the last year, the stock’s return has been negative 29.14%, while the benchmark index gained 7.01%. This trend extends further back, with the stock underperforming the Sensex by a wide margin over three years, falling almost 40% compared to the Sensex’s 37.43% gain. These figures underscore a persistent weakness in the company’s share price relative to market benchmarks.

Technical Indicators and Investor Participation

From a technical perspective, Laxmi Organic is trading below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day averages. This technical weakness often signals bearish sentiment among traders and investors. Additionally, delivery volumes have dropped sharply, with a 44.41% decline in delivery volume on 25 November compared to the five-day average, indicating waning investor participation and reduced buying interest.

Despite this, the stock remains sufficiently liquid for trades up to ₹0.1 crore based on 2% of the five-day average traded value, suggesting that liquidity constraints are not a primary factor in the price decline.

Fundamental Challenges Weighing on the Stock

Fundamentally, Laxmi Organic faces several headwinds that have contributed to its declining stock price. The company’s management efficiency is under scrutiny, with a low average Return on Equity (ROE) of 8.76%, indicating limited profitability relative to shareholders’ funds. This figure is particularly concerning given that the company’s operating profit has contracted at an annualised rate of 22.58% over the past five years, signalling poor long-term growth prospects.

Moreover, the company has reported negative financial results for three consecutive quarters. Profit Before Tax (PBT) excluding other income for the latest quarter stood at ₹11.57 crore, down 54.6% compared to the previous four-quarter average. Similarly, Profit After Tax (PAT) declined by 56.2% to ₹11.02 crore. The Return on Capital Employed (ROCE) for the half-year period is also at a low 4.87%, reflecting inefficient use of capital.

Valuation metrics further dampen investor enthusiasm. Despite the weak profitability, the stock trades at a Price to Book Value of 2.6, which is considered expensive relative to its low ROE of 4.3. This mismatch suggests that the market may be pricing in expectations that the company has yet to meet, contributing to the recent price correction.

Institutional investors have also reduced their holdings by 0.89% over the previous quarter, now collectively owning just 4.8% of the company. Given their superior analytical capabilities, this decline in institutional participation often signals diminished confidence in the company’s fundamentals.

Consistent Underperformance and Investor Sentiment

Laxmi Organic’s consistent underperformance against the benchmark indices over the last three years has eroded investor confidence. The stock has failed to keep pace with the BSE500 index annually, reflecting persistent operational and financial challenges. This trend, combined with falling profits and weak quarterly results, has likely contributed to the subdued investor sentiment and the stock’s ongoing decline.

While the company benefits from a low average debt-to-equity ratio of 0.06, which reduces financial risk, this strength has not been sufficient to offset concerns about profitability, growth, and valuation. The combination of poor management efficiency, declining earnings, and reduced institutional interest has weighed heavily on the stock price.

In summary, Laxmi Organic’s recent price fall is driven by a confluence of weak financial performance, negative earnings trends, expensive valuation metrics relative to returns, and declining investor participation. These factors have collectively led to the stock’s underperformance against market benchmarks and a lacklustre outlook among investors.

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 →