Penny Stocks Are Hot. Here Are The Ones To Avoid

Penny shares have turn into the favorite class for a lot of retail people, particularly first-time buyers.As there are a number of situations the place penny shares have gone up 1,000% in only a matter of months, buyers usually get lured by the massive positive aspects.Make no mistake, due to their low value, these shares can ship a robust revenue even with a small value transfer.And the power to purchase a major variety of shares with a smaller funding holds some enchantment amongst retail people.Over the previous few months, we have lined the penny shares that needs to be in your watchlist. These shares have a good stability sheet, low or zero debt and a monitor report for paying dividend.But what in regards to the ones to keep away from?In this text, we take a look at penny shares you need to keep away from at any price.#1 Scooters IndiaThe first penny inventory to keep away from on our listing is a 2/3 wheeler firm Scooters India.Scooters India is principally engaged within the enterprise of producing and sale of motor autos and spare-parts.So why does this firm kind a part of the listing of penny shares to keep away from? One take a look at the corporate's monetary statements and you will know why.Just when the corporate's turnover was choosing tempo, the pandemic took a toll on its monetary well being.While fiscal 2021 was the worst when it comes to monetary efficiency for Scooters India, the corporate had nothing a lot to point out even after we see its historic monetary statements.Sales have constantly declined through the years whereas it has nothing to point out on the profitability entrance. Between fiscal 2007 and monetary 2021, the corporate has solely reported a money revenue thrice (2014, 2015, 2016).For fiscal 2023 too, the corporate is about to submit losses because it has already reported consecutive losses for the previous three quarters.Though the corporate has performed nicely on the leverage entrance, its present debt to fairness ratio of a whopping 113 certainly is a no brainer on why this inventory needs to be prevented.The firm is saddled with excessive debt, has reported adverse free money circulate, and adverse ROE.No marvel the corporate's inventory continues to be buying and selling close to the identical degree it was buying and selling 3 years in the past.Scooters India additionally has no historical past of paying at the least one dividend.What makes our case more attention-grabbing is the info we discovered on shareholding sample. It's thought of that low free float shares usually have a tendency to maneuver up as there's restricted availability of shares.Scooters India's shareholding sample exhibits that nearly 94% shares are held by the corporate promoters, leaving little for buyers. But as there is no curiosity amongst retail buyers, and although the corporate has low free float, shares have remained in a decent vary.#2 Peninsula LandNext on our listing, we have now a realty firm – Peninsula Land.Peninsula Land is an built-in actual property firm. It is part of the Ashok Primal Group and is engaged in creating retail ventures, industrial 
initiatives and residential complexes.The firm is understood for creating India's first mall, Crossroads, in South Mumbai and changing first mill land right into a industrial advanced, Peninsula Corporate Park, in Central Mumbai's enterprise district, Lower Parel.Have a take a look at the desk beneath and you will perceive why we're saying to keep away from this inventory.

Although the corporate has a good gross sales monitor report (first rate however not nice), profitability has remained a difficulty and that too for the previous seven years.The firm has been reporting a internet loss at a consolidated degree during the last a number of quarters.And as you'll have anticipated, the corporate additionally has no monitor report of paying dividends for the previous 5 years.Negative free money flows, adverse ROE and ROA - the corporate is faring no good on any of those metrics.Meanwhile, Peninsula Land can also be saddled with heavy debt. Its present debt to fairness ratio is at a whopping 230!On a consolidated foundation, the corporate's debt degree was at Rs 2,310 crore as on July 2019, together with project-level debt, and since then the corporate has managed to cut back the identical.Just a month in the past, the corporate defaulted on a cost of loans and curiosity totaling Rs 772.4 m. And this isn't the primary occasion. Peninsula Land had defaulted on its debt obligation earlier in 2020.Despite all this, Peninsula Land's inventory has fared nicely over a 1-year and 3-year interval.

#3 Autoline IndustriesAutoline Industries is engaged in manufacturing sheet metallic parts, assemblies, and sub-assemblies foot management modules, parking brakes, hinges, and so on. for big OEMs within the car trade.It's a key provider to Tata Motors with nearly 80% of its revenues comes from the Tata group firm.Ever since Autoline Industries reported its first consolidated yearly loss in March 2014, it has by no means recovered and has posted consecutive losses.Sales too, have declined over the previous three years.

Post fiscal 2013, the corporate has not rewarded shareholders by declaring dividend.Moreover, there are ongoing delays in debt servicing with considered one of firm's lender as a result of pressured liquidity place. The present debt to fairness ratio stands at 9.4, which is far greater in comparison with earlier years.Now here is the place it will get attention-grabbing. Ace investor Rakesh Jhunjhunwala holds a 2.5% stake within the firm as of December 2021. Meanwhile, his spouse Rekha Jhunjhunwala additionally holds a 1.8% stake.Over the yr passed by, shares of Autoline Industries have gained 120%, regardless of points on the leverage and profitability entrance. Could or not it's simply because Rakesh Jhunjhunwala is an investor within the firm? Maybe.

#4 McNally Bharat EngineeringMcNally Bharat is without doubt one of the established engineering firms in India, which was integrated in July 1961 underneath the title of McNally Bird Engg. Co. Ltd as a three way partnership between McNally Pittsburg, USA and Bird & Co. The firm, headquartered at Kolkata, is engaged in offering turnkey options within the areas of Power, Steel, Alumina, Material Handling, Mineral Beneficiation, Coal washing, Ash dealing with and more. It additionally has many subsidiaries and associates, each in India and overseas.Even although McNally is a longtime participant in its trade, why do we propose you keep away from this inventory? For many causes…To begin with, the corporate's revenues have fallen fairly considerably over the previous 5 years. And due to this, McNally is reporting heavy losses.This yr, industrial slowdown accompanied by banking restrictions on liquidity administration adversely impacted McNally's enterprise and profitability.The firm's monitor report of posting consecutive losses began in March 2013 and since then, the figures have solely gone up.It has taken on more debt which has upped its debt to fairness ratio.With no dividend historical past for previous 8 years, heavy debt, constant monitor report of declining gross sales and adverse profitability, McNally Bharat is unquestionably a inventory to keep away from.

The firm is anticipating debt restructuring plans to be cleared by this fiscal. The administration has stated it's strategising to restructure general debt by in search of cooperation from financially sound buyers and enterprise homes.McNally Bharat owes over Rs 23 bn to a clutch of banks together with Bank of India, SBI, IDBI Bank, Axis Bank, ICICI, Karur Vysya, PNB, Standard Chartered, Union Bank, UCO Bank, Bank of Baroda, Canara Bank, DCB Bank and DBS Bank.Going ahead, the corporate is pursuing JVs in Europe and the Middle East for aggressively executing initiatives within the areas of good cities, social sector buildings, renewable energy, water administration and infrastructure.Which different penny shares must you keep away from?Apart from the above, listed here are a pair more penny shares which you need to keep away from. These firms have a monitor report of reporting constant losses, declining gross sales and are saddled with heavy debt.

Instead, be careful for firms which a good monitor report of profitability and gross sales, have a debt to fairness ratio of lower than 1, and pay dividends.Luckily for you, we have shortlisted essentially the most engaging penny shares, with the assistance of Equitymaster's Stock Screener.Check out the beneath screener which lists probably essentially the most promising penny shares.

Please notice these parameters could be modified in accordance with your choice standards.This will enable you in figuring out and eliminating shares that aren't assembly your necessities and provides emphasis on these shares which are nicely contained in the metrics.Equitymaster's Penny Stocks Guru on shares to keep away from…We reached out to Rahul Shah, Co-head of Research at Equitymaster, and editor of Exponential Profits, for what he has to say on the penny shares to keep away from.Here's him in his personal phrases…Graham as soon as talked about that the chief losses to buyers come from the acquisition of low-quality securities at occasions of favorable enterprise circumstances.A variety of poor high quality penny shares can have one or two years the place they earn good income.Investors mustn't confuse this prosperity with security and find yourself shopping for the shares.They ought to all the time keep on with shares which have at the least a 5-year monitor report of secure or rising income or each and likewise a robust stability sheet. Otherwise, the chance of dropping cash within the penny inventory area could be very excessive.Before investing in a penny inventory, one should examine whether or not the corporate has a robust stability sheet. A wholesome monetary profile signifies good development prospects.Next, examine for future development alternatives. Favourable authorities insurance policies or good order guide standing are some indicators you possibly can take a look at.Finally, examine for feasibility of enterprise. The more viable the enterprise, the longer it should final.Investing in penny shares isn't any rocket science. However, it requires you to follow warning whereas doing so. Picking the fitting penny shares will assist increase your portfolio returns.Happy Investing!Disclaimer: This article is for info functions solely. It will not be a inventory suggestion and shouldn't be handled as such. (This article is syndicated from Equitymaster.com)

(This story has not been edited by NDTV workers and is auto-generated from a syndicated feed.)