Diwali season is on the way, and we have been talking a lot about the best stocks for Muhurat Trading. We have already gathered a few top stocks for our portfolio. But no one is talking about the worst-performing stocks to avoid this Diwali. Some of these companies are drowning in debt, on the verge of bankruptcy, or caught up in legal troubles. Before making your final picks, check your portfolio and make sure you’re not holding any of these risky stocks. Save yourself from potential downfalls.
Related Post: Muhurat Trading 2024 – Diwali Stock Pick Ideas for Samvat 2081
How to Identify the Worst-performing Stocks – The Wealth Destroyer
When identifying worst-performing stocks to avoid this Diwali, consider the following red flags:
–Earnings Per Share (EPS) < 0 for the past 5 years – Consistently negative earnings signal poor profitability.
–Debt-Equity Ratio > 50% – High debt levels indicate financial risk and potential solvency issues.
–EBIT/Interest Ratio < 4 – A low ratio shows difficulty in covering interest expenses, suggesting financial pressure.
–Return on Equity (RoE) < 10% – Indicates the company is generating poor returns for its shareholders.
–Return on Capital (RoCE) < 10% – Reflects inefficient use of capital, leading to subpar overall performance.
–Price-to-Earnings (P/E) Ratio > 50 (or >30-40 in some cases) – Overvalued stocks could signal potential market corrections or bubbles.
Each of these metrics highlights potential trouble areas in a company’s financial health. Be mindful of these when reviewing your portfolio.
Also read: This Diwali, dispel 3 evils and refresh your portfolio
Worst-Performing stocks
The Worst-performing stocks to avoid this Diwali are Reliance Communications, Vodafone Idea, Reliance Infrastructure, GTL Infrastructure, and Websol Energy System Ltd.
Worst-Performing stocks
| Company | Stock Price | EPS | Debt to equity | ROE | ROCE | P/E | 3 Years Return |
| Reliance Communications Ltd | ₹ 2.32 | ₹ -27.0 | -0.58 | 0.00 | 0.08 | -0.07 | -8% |
| Vodafone Idea Ltd | ₹ 7.66 | ₹ -5.71 | -1.99 | 0.00 | -3.61 % | -1.79 | -9% |
| Reliance Infrastructure Ltd | ₹ 277 | ₹ -29.5 | 1.11 | -18.39 | 4.30 | -9.40 | 44% |
| GTL Infrastructure Ltd | ₹ 1.97 | ₹ -0.61 | -0.63 | 0.00 | -3.06 | -3.23 | 10% |
| Websol Energy System Ltd | ₹ 1,242 | ₹ -22.4 | 1.70 | -112.29 | -15.63 | -55.60 | 151% |
Let’s explore a few facts about some of these stocks.
Reliance Communications Ltd
RCOM’s shares are currently suspended due to the company’s Insolvency Resolution Process. The company is under regulatory probes and has struggled with poor profit and revenue growth over the past three years, along with a negative book value. According to Moneyworks4me, RCOM has had a below-average financial track record over the last decade.
Key concerns include:
-Poor sales growth of -37.5% over the last five years.
-Low promoter holding at just 1.85%, which has decreased by 3.33% over the past three years.
-The low-interest coverage ratio highlights its financial strain.
Vodafone Idea Ltd
Vodafone Idea’s stock has been steadily declining. As of October 26, 2024, it trades at ₹7.67, reflecting a 5.66% drop from its previous close. The stock continues to lag behind its sector. It carries a significant debt load and may need to raise funds to strengthen its balance sheet.
The company faces several challenges:
-Its interest coverage ratio remains low, signalling financial strain.
-Over the last five years, sales growth has been weak at just 2.83%.
-Promoter holdings have decreased by 0.85% in the last quarter.
These factors highlight the company’s ongoing struggles.
Reliance Infrastructure Ltd
Shares of Reliance Infrastructure Ltd (Reliance Infra), led by Anil Ambani, have faced setbacks. State Bank of India (SBI) has filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, against KM Toll Road, a wholly owned subsidiary, with a claim of ₹233.44 crore (including interest) before the National Company Law Tribunal in Mumbai.
Key challenges for Reliance Infra include:
-The low-interest coverage ratio indicates financial difficulties.
-Low promoter holding of 16.5%.
-Poor return on equity of -6.24% over the past three years.
-High cost of borrowing, adding to financial pressure.
These factors reflect the company’s ongoing financial struggles.
GTL Infrastructure Ltd
GTL Infrastructure expanded aggressively, relying heavily on debt. By 2011, its debt had soared to over ₹13,000 crore (around USD 2 billion). As rental income stagnated and operating costs increased, the company struggled to service this debt.
In August 2023, the Central Bureau of Investigation (CBI) filed a first information report (FIR) against GTL Infrastructure Ltd and unnamed officials. The FIR relates to an alleged fraud of ₹4,063.31 crore involving a consortium of 19 banks and financial institutions. (The Economic Times)
Key issues include:
-Low promoter holdings signal a lack of confidence.
-Revenue growth is negative at -0.90% over the past three years.
-Return on Equity (ROE) stands at 0%, offering no returns to shareholders.
-Promoter pledging is alarmingly high at 100%.
These challenges highlight the uphill battle GTL Infrastructure faces.
Websol Energy System Ltd
Websol Energy System Ltd has faced significant losses, mainly due to a sharp drop in solar cell and module prices. The company couldn’t reduce production costs enough to keep up. Its stock is currently trading at 48.7 times its book value. (Analysis: Websol Energy System Ltd)
Key issues include:
-Low-interest coverage ratio: The company struggles to meet its interest obligations.
-Declining sales growth: It has reported -17.7% sales growth over the past five years.
-Negative return on equity: The return on equity stands at -4.19% over the last three years.
-High promoter pledging: A staggering 93.0% of promoter holdings are pledged.
These challenges highlight Websol’s struggles in a competitive market.
Bottom Line
The financial landscape for Rcom, Vodafone Idea, Reliance Infra, GTL Infrastructure, and Websol Energy System Ltd reveals significant struggles that investors should heed. Each company’s low-interest coverage ratios and high levels of promoter pledging further underscore their financial instability. As these firms confront critical challenges, investors must proceed with caution, thoroughly evaluating their potential investments in this uncertain market. This Diwali brighten up your house as well as your portfolio with smart choices.
That’s all for today’s post! Hope you get helpful insights from here!!
Happy Diwali🪔🎇!!
Disclaimer
The blog is meant for informational purposes and serves as a general analysis of stocks. The contents provided here are based on careful research and analysis utilizing fundamental and technical indicators over time. The post does not contain any direct recommendations about Investing or trading in the securities market. Thorough research and careful consideration are necessary for individuals to fulfil their responsibility in making financial decisions. Seeking professional advice before making any financial decisions is always advisable.
