Zebu blog

Tag: Undervalued Stocks

  • What Are Value Stocks?

    Growth stocks are companies that have a lot of room to grow. By buying shares in these kinds of companies, investors can make a lot of money through capital appreciation. However, investing in growth stocks requires the right research before you can buy them.

    Features

    People who like to take risks and want to make a lot of money on their investments should buy growth stocks. By looking at the following things, investors can easily find the best growth stocks and the companies that make them:

    Price to earnings ratio

    On the market, companies with a lot of growth potential are found, and shares of those companies have a high bid value. These companies’ growth stocks have a high price-to-earnings (P/E) ratio, which means they give a high return on total investment.

    People see a company’s full potential and think it will grow at a fast rate in the future if it has a high price-to-earnings ratio. But in some situations, a high P/E ratio can be misleading because it could mean that a business is overvalued. The performance of these kinds of businesses is caused by a boom, persistent inflation, or the growth of a financial bubble.

    One of the first things that the best growth stocks in India tend to have is a ratio of 1 or more.

    Price earnings to growth ratio
    Because the P/E ratio has some limitations, investors in India also look at the price-earnings to growth ratio to tell growth shares from standard equity shares. The main benefit of the PEG ratio over the P/E ratio is that it takes into account how much a company’s total earnings per share are growing each year.
    PEG Ratio = Market value of unit shares divided by the growth rate of earnings per share

    When a business has a high PEG ratio, it means that it has done very well. It is a better way to analyse a stock than the price-to-earnings ratio because it doesn’t give you false information.

    Strength of the company

    Companies can only give out growth stocks if they have a lot of room to grow and expand in the future. This can only be done if the company has a strong base, a good plan for business growth, and good management to reach the goals that have been set.

    It can be seen in the return on equity (RoE) value that is published every year. In India, companies that raise money through growth stocks usually have a record return on total equity of 15% or more per year.

    Why should you buy stocks that can grow?

    Capital appreciation
    Investing in the best growth stocks is done to make sure that a lot of money is made through large capital gains. These companies grow faster than the industry they are in, which means they make more money.

    Investing in growth stocks is only a way to make money in the long run. The long-term capital gains tax (LTCG), which is lower than the short-term taxation policy, applies to any capital gains made during this time. There is also a provision for indexation, which lowers people’s tax burdens even more.

    Prepare for rising prices
    The best growth stocks have returns that are much higher than the rate of inflation in an economy. In the long run, people’s purchasing power goes up, which means that their standard of living goes up because they have more money.

    Risks of growth stocks

    Growth companies look to make money by using aggressive business strategies to get a big share of the market. Investors lose a lot when these kinds of companies don’t pay dividends because they want to use the money instead to grow.

    During the lock-in period, investors don’t get any dividends, so if a business keeps losing money, in the long run, investors will lose all the money they put into it.

    Growth stocks are usually issued by companies that are still growing and changing, so they are very risky. They are very sensitive to changes in the market because they are volatile. Even though this feature lets businesses make huge profits when the market goes up, even a small change in price can cause losses. Investing in the best growth stocks should depend on how the market is doing. The underlying performance of growth stocks can also be caused by a country’s stable economy. If there is a financial bubble, companies that work in that sector tend to do better than they should. This kind of growth can be deceiving because it is caused by a strange thing in the economy.

    In order to make enough money, investing in growth shares in India requires a thorough analysis of both the companies chosen and the social and economic conditions at the time.

  • What Is Bottom Fishing?

    Bottom fishing is the practice of investing in assets that have gone down in value, either because of internal or external factors and are thought to be undervalued.

    Every move in the share market is critical, but so is the technology you use to make those moves. As an experienced online trading company, we offer our users a seamless online trading platform and the lowest brokerage options to support their trading journey.

    How to Figure Out Bottom Fishing

    Investors who use the bottom-fishing strategy are called “bottom fishers.” They bet, using either technical or fundamental analysis, that an asset’s low price is only temporary and that it will rise again over time to become a profitable investment. Bottom fishing can be a risky strategy when asset prices are down for a good reason or a smart strategy when asset prices are trading at irrationally low prices.

    Bottom fishing is based on the tried-and-true method for making money in the stock market, which is to buy low and sell high. In short, look for value and invest in it. Value investors like Warren Buffett and Benjamin Graham have made a lot of money by buying assets that are selling for less than they are really worth and waiting for prices to go back to normal.

    Bottom fishing as a way to make money has often been thought of as more of an art than a business strategy because it is so abstract. The most important thing to know about this art is that a successful bottom fisher doesn’t try to buy a stock at its absolute lowest price, but rather at a point where it has the best chance of going up.

    The best way to describe the risk of bottom fishing is with the market saying, “There’s a reason why the price is where it is.” Simply put, the market is always deciding how much a security is worth. If the value of a security has dropped sharply, there may be a good reason or reasons for the drop. It is very hard, if not impossible, to tell if this drop is due to something temporary, like panic selling, or if it is a sign of deeper problems that are not obvious.

    Here are some examples of bottom fishing:


    Putting money into the stock of an aluminium company when the price of aluminium is low.
    Buying shares of a company that ships containers during a recession.
    Putting money into a print media company when the internet is driving them out of business.
    Buying shares of a bank when the economy is in trouble.
    In each of these situations, it’s not clear when or if the stock price will go back up, but you could make a case either way. During the 2008 financial crisis, investors who bought bank stocks made a lot of money, but investors in print media companies may have lost money because the industry has never been able to fully recover from the increasing competitive pressures.

    Strategies for bottom fishing
    Bottom fishing is appealing because it has a higher chance of making money than assets that are fairly valued or overvalued. Bottom fishing is most popular in bear markets, which makes sense.

    Value investing is the most common way to fish at the bottom. Value investors look for opportunities where the market may be pricing assets too low. They do this by looking at valuation ratios and predicting future cash flows. A company that had a bad quarter because of a problem with its supply chain and saw a big drop in sales would be a great example. Value investors might decide that this is an isolated incident and buy the stock in the hopes that it will recover and trade at a price that is more in line with its peers.

    Many traders also use technical analysis to find stocks that have been oversold and could be good opportunities for bottom fishing. For example, a company may report quarterly financial results that are worse than expected and see a big drop in price. Traders may see that the pressure to sell is starting to ease and decide to go long to take advantage of the short-term recovery. Often, these traders will use technical indicators that help them figure out if a security has been oversold or look at patterns in candlestick charts to do the same thing.

    As an experienced online trading company, we offer our users a seamless online trading platform and the lowest brokerage options to support their trading journey.