Why is Ritesh International Ltd falling/rising?

Recent Price Movement and Market Context

Ritesh International’s shares have experienced a notable decline over the past two days, losing approximately 9.62% in value. Although the stock opened the day with a positive gap of 2% and reached an intraday high of Rs 72.05, it ultimately succumbed to selling pressure, closing at its intraday low. This price action suggests that despite initial optimism, investor sentiment turned cautious as the day progressed. The weighted average price indicates that a greater volume of shares traded closer to the day’s low, reinforcing the bearish momentum.

Moreover, the stock underperformed its sector by 3.31% on the day, signalling relative weakness compared to its peers. The delivery volume on 08 Jan dropped by 33.79% compared to the five-day average, pointing to falling investor participation and possibly reduced conviction among shareholders. Despite these short-term setbacks, the stock remains above its 20-day, 50-day, 100-day, and 200-day moving averages, although it is trading below its 5-day moving average, indicating some recent softness in price momentum.

Strong Long-Term Fundamentals Underpinning the Stock

Despite the recent price weakness, Ritesh International’s underlying business fundamentals remain robust. The company has demonstrated healthy long-term growth, with operating profit expanding at an annualised rate of 30.39%. Over the last six months, net sales surged by 41.04% to Rs 73.79 crores, while profit after tax (PAT) soared by an impressive 341.41% to Rs 1.68 crores. This consistent profitability is further evidenced by six consecutive quarters of positive results, underscoring operational resilience.

The company’s return on capital employed (ROCE) stands at a strong 19.4%, reflecting efficient utilisation of capital and attractive valuation metrics. Its enterprise value to capital employed ratio of 2 suggests the stock is trading at a discount relative to its peers’ historical valuations, offering potential value for investors. Over the past year, the stock has delivered a remarkable 120.25% return, vastly outperforming the Sensex’s 7.67% gain and the broader BSE500 index’s 6.14% return. Profit growth over the same period has been even more striking, rising by 427%, which positions the company favourably on a PEG ratio basis.

Market Performance and Shareholder Composition

While the stock’s one-year performance has been exceptional, its three-year returns have lagged the benchmark, with a decline of 6.73% compared to the Sensex’s 37.58% rise. Over five years, however, the stock has delivered a substantial 386.30% gain, significantly outpacing the market’s 71.32% growth. This volatility highlights the cyclical nature of the stock’s price movements and the importance of a long-term investment horizon.

Notably, the majority of the company’s shares are held by non-institutional investors, which may contribute to greater price fluctuations due to varied trading behaviours. The stock’s liquidity remains adequate for typical trade sizes, supporting continued investor interest despite recent volume declines.

Conclusion: Short-Term Price Pressure Amid Strong Fundamentals

The recent decline in Ritesh International’s share price on 09-Jan appears to be driven by short-term profit-taking and reduced investor participation rather than any deterioration in the company’s financial health. The stock’s underperformance relative to its sector and the broader market over the past week contrasts with its strong year-to-date and one-year returns, reflecting a temporary pullback within a longer-term uptrend.

Investors should weigh the current price weakness against the company’s solid growth trajectory, attractive valuation, and consistent profitability. While the stock has experienced some volatility in recent days, its fundamentals suggest potential for recovery and further appreciation over time, particularly for those with a long-term investment perspective.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →