From 52-Week Low to All-Time High: Cyient Up 197% in 11+ Months!

Cyient Limited’s Record Surge to a New All-Time High

It has been continuously making new 52-week highs after a gap of a few days in November and December, which is an indication of bullishness. We will consider the 52-week high made in September on 05 September 2023 at ₹ 1945. It took 3 months and 16 days to reach the current 52-week high made on 21 December 2023 at ₹ 2355. In between, it made a low of ₹ 1542.1 on 26 October 2023, implying a correction of over 20%. It may represent a change in the investors’ sentiment about the company due to improved financial condition or may represent overvaluation. Let’s go through the factors contributing to its all-time high.

Factors Contributing to a Stock’s All-Time High

Positive Earnings Reports

• In the last 5 quarters, its revenue has shown double-digit growth year-on-year. In Q2 FY24, its revenue increased by 27.38% year-on-year and reached the level of 27.38%.
• In Q2 FY24, its cost of goods sold was comparatively lower than Q2 FY23 when compared to revenue, but the gross profit increased by over 28.78% and reached the record level of ₹612 crores.
• Losses under the non-operating income tab have been reduced by over 31.35 %, which has indirectly helped in increasing the net income by 125.41% to reach ₹178 crores.

Favorable Industry Trends

• The automotive industry is continuously transforming with the integration of AI, machine learning, sensor technologies, etc. It has made the dream of self-driving cars a reality. Cyient Limited can use this opportunity through vehicle design, safety, and infrastructure.
• Multiple industries are now using robotics to make high-quality products with minimum human intervention at an efficient cost. It can bring another level of industrial revolution and revenue stream for companies like Cyient.
• For India to become a 500GW economy, it needs to make sure that blackouts become history, which needs the use of smart metering. Small meters for precise energy consumption monitoring and management are installed, which helps optimize the grid and improve resource utilization.

Analyst Ratings

According to Simple Wall Street, Cyient Limited is 103.9% overvalued based on the discounted cash flow model. Over the past year, its earnings grew by 38.3% and are forecasted to grow by 16.98% yearly. With a PE ratio of 38.8x, it is undervalued compared to its peers, with an average PE of 45.9x. Cyient has high-quality earnings with a current net profit margin of 9.7%, which is higher than the 9.6% profit margin of last year.

Potential Scenarios Following an All-Time High

(Based on the chart of 1-month timeframe)

Converting numbers and candles into information can provide us with the market’s stance on the stock, which may help us make correct investment decisions. Since May 2023, it has made a new high every month with higher highs and higher lows except in the month of October, which is a sign of bullishness. We can expect the trend to continue so one can consider entering the stock at the price of their liking and keep the stop loss at the low of the previous month.

Making Informed Investment Decisions

For any stock, reaching an all-time high is a significant milestone. Still, conducting thorough research and considering various factors is essential before making investment decisions. To make informed choices that align with your investment goals and risk tolerance, one needs to analyze the company’s fundamentals, industry trends, management’s strategy, and overall market conditions.

Company’s Financial Health

• In 2022, Cyient Limited had a debt of ₹ 1218 crores covered by a free cash flow of ₹ 465 crores and cash & equivalents of ₹ 719 crores. If we compare it to the previous year, then the debt has more than doubled, and free cash flow and cash & equivalents have seen a reduction. A sudden increase in debt, which may not be used for future growth, is an issue of concern.
• In the short term, it has a liability of ₹ 2023 crores covered by assets of ₹ 3180 crores. The assets of ₹ 3368 crores cover its long-term liabilities of ₹ 1062 crores. It may have to sell a few of its assets to reduce the debt level in future.

Industry Outlook

• In the coming time, large data sets will reveal various patterns that can identify opportunities to make improvements for efficiency. The whole decision-making process will be data-driven.
• Once quantum computing enters regular use in the industries, we may see better solutions to challenging problems through fast and powerful computational capabilities.
• The Internet of Things is also being used in the industrial sector, known as industrial IoT. As industries become more automated, they will create opportunities for companies involved in data analytics.

Market Sentiment

Cyient Limited reaching an all-time high is an indication of optimistic investors’ sentiment about the company’s future growth. The double-digit growth in the quarterly revenue year-on-year with a significant increase in gross profit and net income is an indication of the good financial health of the company. The stock being tagged as overvalued by analysts, along with continued highs being made every month, may cause the stock price to see some correction on account of profit booking. Overall, Cyient’s operation sectors are growth sectors with increasing importance in the future, but it needs to manage its debt level for continued operations in case of any financial difficulty. Investors need to conduct detailed research, considering factors like company fundamentals, industry trends, and financial health, to make informed investment decisions.