Why is Natco Pharma falling/rising?

Short-Term Performance Outshines Benchmarks

Natco Pharma’s recent price action has been robust, with the stock gaining 11.92% over the past week and 13.80% in the last month, significantly outperforming the Sensex’s modest gains of 0.65% and 1.43% respectively during the same periods. This sharp short-term appreciation contrasts with the stock’s year-to-date and one-year returns, which remain deeply negative at -32.71% and -34.03% respectively, while the Sensex has delivered positive returns of 8.96% and 6.09% over those intervals.

Such divergence suggests that investors are currently focusing on near-term catalysts or technical factors rather than the longer-term fundamental challenges the company faces.

Technical Indicators Signal Positive Momentum

On 02-Dec, Natco Pharma’s intraday high reached ₹948.25, marking a 5.01% increase from the previous close. The stock has been on a two-day consecutive gain streak, accumulating a 6.27% return in this period. Importantly, it is trading above all key moving averages — 5-day, 20-day, 50-day, 100-day, and 200-day — which is often interpreted by technical analysts as a bullish signal. This upward momentum likely contributed to the stock outperforming its sector by 3.35% on the day.

However, it is worth noting that investor participation appears to be tapering slightly, with delivery volumes on 01 Dec falling by 3.37% compared to the five-day average. Despite this, liquidity remains adequate, supporting trade sizes up to ₹12.83 crores based on recent average traded values.

Fundamental Factors Provide Mixed Signals

From a fundamental perspective, Natco Pharma exhibits several strengths that may be supporting investor interest. The company boasts a high return on equity (ROE) of 16.25%, indicating efficient management and profitability relative to shareholder equity. Additionally, its debt-to-equity ratio averages at zero, reflecting a conservative capital structure with minimal leverage risk.

The stock’s valuation metrics also appear attractive, with a price-to-book value of 1.9, suggesting it is trading at a fair value compared to its historical peer averages. This valuation may be enticing investors seeking value opportunities within the pharmaceuticals sector.

Nonetheless, the company’s financial performance has faced headwinds, with profits declining by 20.9% over the past year. This decline is mirrored in the stock’s negative one-year return of -34.03%, indicating that despite recent gains, the company’s earnings challenges continue to weigh on longer-term investor sentiment.

Balancing Short-Term Gains with Long-Term Challenges

In summary, Natco Pharma’s recent price rise on 02-Dec is primarily driven by strong short-term performance and positive technical indicators, which have helped the stock outperform its sector and the broader market in the near term. The company’s solid management efficiency and conservative financial structure provide a foundation that supports investor confidence despite ongoing profit declines.

Investors should weigh these short-term gains against the backdrop of the stock’s significant year-to-date and one-year losses, as well as the underlying earnings contraction. While the current valuation appears reasonable, the stock’s longer-term trajectory will likely depend on the company’s ability to reverse profit declines and sustain growth in a competitive pharmaceutical landscape.

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 →