Investment Opportunity in Revathi CP Equipment

Revathi Equipment has been in a downtrend since the mid of 2017. From 1063 it has fallen to 270 almost 80% from the top. For the last 2 years, this stock has been in the consolidation phase. This stock was phasing the resistance at 510 and support at 300. It had fallen 3 times for the 510 level and took support/pull back from 300 twice.

It has also formed an Inverted Head and Shoulder Pattern in this consolidation phase. An inverted head and shoulder pattern is a bullish reversal pattern which forms at the bottom of the downtrend. This pattern signifies the end of the downtrend and the starting of the downtrend. This pattern is the structure of the accumulation period. Generally, this type of pattern is formed in the market when big investors or smart investors are accumulating the stock in this phase.

We can also watch for the volumes in this phase also to confirm the accumulation.

The big buying volumes are the indication of accumulation in this phase. And we can also see when the market is falling the volumes are very low. This implies that the sellers are not much strong and they are not selling in big quantity.

Indicators are also suggesting bullishness in the stock.

OBV(On-Balance Volume is continuously rising in the consolidation phase. OBV also indicates the accumulation in the stock.

MACD is showing the divergence and entering into the positive zone with bullish crossover.

The price moved above the 200EMA, which is a positive indicator for the stock.

The moment of price above or below the 200 Moving Average very important in the market.

200 moving average works as the very strong support of any stock in the market. If the stock falls below the 200 Moving Average then this is the indication of something happening wrong with the fundamentals of the company.

If the price moves above the 200 Moving Average then this is the indication of improvement in the fundamentals of the company.

The smart investor starts accumulating the stock before the fundamentals start improving.. Like in this stock.

Today it has breached the resistance of 510 with a good body and big volumes. The next zone where it can face resistance will be 800-850.

Some Positive Indication of Fundamentals.

1) Effectively using its capital to generate profit - RoCE improving in the last 2 years.

2) Effectively using Shareholders fund - Return on equity (ROE) improving since last 2 years.

3) Efficient in managing Assets to generate Profits - ROA improving since last 2 year

4) Company with Low Debt

5) Annual Net Profits improving for the last 2 years.

6) Book Value per share Improving for last 2 years

7) Company with Zero Promoter Pledge

8) Market Price Trading below Book Value per Share. (Price to Book Value= 0.87)

9) Stock is getting very low PE and below the Sector PE. A company with good fundamentals getting PE lower than the sector PE indicates the stock is undervalued.

10) EPS has been rising for the last 1 year.

Fundamentally the stock is looking good at the current level.

The investment of short to long term can be initiated.