Multibagger defence stock trading in overbought zone hit record high today; what’s next?

Shares of Mazagon Dock Shipbuilders Ltd hit a record high today. The defence stock is trading in the overbought zone, signaled by the relative strength index (RSI) of 82.5. A stock having a RSI above 70 mark is referred to as overbought. The RSI for Mazagon Dock Shipbuilders indicates that the stock is extremely overbought. A significantly high value of RSI of a stock indicates that it might see correction soon.

The stock is also overvalued with a high PE of 35.57 compared to the sectoral PE of 30.76. The PE, which stood at 15.19 on May 31, 2023, has zoomed to the 35 level within a span of two months. The stock price too has moved sharply from Rs 807.8 on May 31 to Rs 1938.50 in the current session, rising over 100% during the period. With a high PE compared to the industry and a RSI above 80, the stock can either continue its upward March to fresh highs or likely see some profit-booking.

Here’s a look at what analysts said on the outlook of the private shipbuilder’s shares.

Vaishali Parekh, Vice President - Technical Research, Prabhudas Lilladher said, "The stock has witnessed a spectacular bull run in the last two months gaining almost 60% and currently after a short consolidation phase has once again indicated a spurt to come out of the range of Rs 1,760 zone to trigger for fresh upward move. The near-term support would be maintained near Rs 1700 zone and with overall bias still remaining positive, one can expect for further gains in the coming days with targets of Rs 2000-2080."

Abhijeet from Tips2Trades said, "Mazagon Dock stock price is overbought on the Daily charts with strong resistance at Rs 1773. Investors should book profits at current levels as a close below support of Rs 1591 could lead to Rs 1160 level in the near term."

Antique Stock Broking has assigned a target of Rs 1,944 on the stock.

"The stock is still under-valued. Here are the reasons why: (1) Investors assume the Rs 430 bn P75(I) is a one-off project-with Mazagon Dock's best case of winning 4/6 orders; on the contrary, we argue submarine work is recurring. Add three units of the Scorpene class, followed by 12 units of the P76-and the TAM is over Rs 1.3 trn; (2) Moving to non-submarine work, there is Rs 345 bn order backlog that can support Rs 100 bn plus annual execution, which again has a recurring argument with a TAM of over Rs 1.3 trn. Thereby, for projections made using

In the current session, the multibagger stock hit an intraday high of Rs 1938.50, rising 4% on BSE against the previous close of Rs 1863.75. Market cap of the firm climbed to Rs 38,079 crore.

With today's rally, Mazagon Dock stock has risen 139% this year. In a year, the stock has delivered stellar returns of 587%. Total 0.57 lakh shares changed hands amounting to a turnover of Rs 10.75 crore on BSE. Mazagon Dock stock hit a 52-week low of Rs 268 on July 26, 2022.

In terms of technicals, Mazagon Dock stock has a one-year beta of 1.5, indicating very high volatility during the period. Mazagon Dock shares are trading higher than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages.

In the fourth quarter of the previous fiscal, net profit more than doubled to Rs 326 crore against Rs 159 crore in the corresponding quarter of the last year. Other income rose to Rs 211 crore in Q4 against Rs 129 crore year on year. Revenue climbed 49 percent to Rs 2,078 crore. Earnings before interest, tax, depreciation and amortisation (EBITDA) zoomed nearly three times to Rs 211 crore in Q4 against Rs 77 crore year on year. EBITDA margins doubled to 10.1 percent versus 5.5 percent in the corresponding quarter of last year.

Mazagon Dock Shipbuilders Ltd (MDS) is a shipbuilding and offshore fabrication yard. The company's major activities include shipbuilding, ship repairs and fabrication of offshore structures. It provides warships, merchant ships, submarines, support vessels, offshore platforms, passenger cum cargo vessels, trawlers, main and helidecks and barges.

Also read: Hot stocks on July 24, 2023: YES Bank, Suzlon Energy, Mazagon Dock, SJVN and more

Also read: Stocks that share market analysts recommended on July 24, 2023: Infosys, Coforge, Tata Communications, ITC