Why is NIBE falling/rising?

Recent Price Movement and Market Comparison

The stock’s 10% rise on 12-Dec marks a notable outperformance against its sector and the broader market indices. Over the past week, NIBE has gained approximately 10.5%, while the Sensex declined marginally by 0.52%. This short-term rally contrasts with the stock’s longer-term underperformance, as it has declined by over 41% in the last year compared to a 4.9% gain in the Sensex. Year-to-date, the stock remains down by 35.5%, whereas the benchmark index has advanced by 9.1%. Despite this, the stock’s three- and five-year returns remain impressive, with gains exceeding 276% and 7,800% respectively, far outpacing the Sensex’s corresponding returns.

Trading Activity and Technical Indicators

On the day of the surge, NIBE traded within a wide range of ₹102.3, reaching an intraday high of ₹1,102.20. The stock’s price is currently above its 5-day and 20-day moving averages, signalling short-term momentum, though it remains below its longer-term averages such as the 50-day, 100-day, and 200-day moving averages. This suggests that while there is recent buying interest, the stock has yet to fully recover from its longer-term downtrend. Investor participation has increased, with delivery volumes on 11 Dec rising by over 17% compared to the five-day average, indicating growing conviction among shareholders. Liquidity remains adequate for moderate trade sizes, supporting continued market activity.

Fundamental Performance and Promoter Confidence

Despite the recent price rally, NIBE’s fundamental performance remains mixed. The company has demonstrated strong long-term growth, with net sales expanding at an annualised rate of 229.64% and operating profit growing by 76.32%. Such figures highlight the company’s underlying business potential and capacity for expansion over time. Additionally, promoter confidence appears robust, as promoters have increased their stake by 1.19% in the previous quarter, now holding 54.93% of the company. This increase is often interpreted by the market as a positive signal, reflecting faith in the company’s future prospects.

Challenges and Valuation Concerns

However, the company’s recent quarterly results have been disappointing. Net sales fell sharply by 46.05% in the September quarter, and the company has reported negative earnings for two consecutive quarters. The quarterly profit after tax (PAT) declined by 192.5%, registering a loss of ₹8.44 crores. Return on capital employed (ROCE) is notably low at 3.79%, and the operating profit to interest ratio stands at a negative 2.60 times, indicating operational stress and financial strain. These factors have contributed to the stock’s underperformance over the past year, with profits falling by 75% and the stock generating a negative return of 41.12%, significantly lagging the broader market.

Valuation metrics also raise caution. With a ROCE of 2.5 and an enterprise value to capital employed ratio of 5.3, the stock is considered expensive relative to its capital efficiency. Although it trades at a discount compared to peers’ historical valuations, the company’s weak recent financials and profitability challenges temper enthusiasm.

Conclusion: Why the Stock is Rising Despite Weakness

The recent 10% rise in NIBE’s stock price on 12-Dec can be attributed primarily to short-term technical factors and renewed investor interest, as evidenced by increased delivery volumes and the stock’s outperformance relative to its sector and the Sensex over the past week. The rise in promoter stake signals confidence in the company’s long-term prospects, which may be encouraging investors to accumulate shares despite recent negative earnings and sales declines. Furthermore, the stock’s attractive long-term growth trajectory and strong historical returns provide a foundation for optimism.

Nevertheless, investors should remain cautious given the company’s recent financial setbacks, including consecutive quarters of losses, declining profitability, and valuation concerns. The stock’s recovery is still tentative, with prices below key longer-term moving averages. As such, while the current rally reflects positive sentiment and technical momentum, it is tempered by fundamental challenges that may limit sustained upside without a turnaround in financial performance.

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