Shares of NCC LTD (NSE: NCC) gains nearly 30% in February after receiving orders worth ₹1500 crores. The major construction company is now trading near its 52-week high price.
Like other construction companies, NCC has also performed exceptionally well last year returning over 250%. If we look at the weekly chart, the company has closed higher each week since January 2024.
NCC not only specialise in commercial construction such as roads, flyovers, railways, and power transmission, but also housing development plans as well. The construction sector has outperformed other sectors in the last two years even better than Nifty and Sensex.
Strong sales performance is the reason behind the Rise of NCC Ltd
The previous quarter has been very well for NCC, with its Annual Net Profit being the highest this year. The company reported a net profit of ₹609.20 crores this year which is 5.3% higher than the profits it made ten years back.
NCC Ltd have also increased their sales numbers rising from ₹3909 crores in December 2022 to ₹5260 Crores in the latest quarter of 2023. A sales growth of 33% is an utter display of strong demand for NCC.
Construction company NCC also pays dividends regularly, which makes them attractive to long term investors. The company is also able to generate cash flow consistently which shows their operational efficiency.
NCC is trading at a Price to Earning (PE) of 23x. While the industry average PE of the construction sector is at 65x, NCC Ltd is well below the rest of its competitors.
Investors may consider this as a potential undervaluation for the company. This may lead to a rise in demand for the stock, as it is relatively cheaper compared to the value it can offer (based on the PE ratio)
NCC Swing Trading Plan
Technical, NCC Ltd is in an overbought zone, considering the parabolic bullish up move it recently experienced.
For a potential swing trade entry in NCC, my ideal buy zone is around ₹230. The rationale for targeting this level is based on Fibonacci retracement.
Specifically, ₹230 represents a 38.2% Fibonacci retracement of the previous swing low of ₹154 to its all time high. In up trending stocks like NCC Ltd, the 38.2% retracement is a common area of support as the stock pulls back temporarily in a rising market.
The logic is that a 38.2% pullback allows the stock to take a breather on its way up while remaining in the broader uptrend. Bullish stocks frequently find buying support around this Fibonacci level before resuming their upward momentum.
Therefore, I would be inclined to take a long position if the stock corrects to ₹230, which aligns with a moderate 38.2% retracement off the recent swing low.
The confluence of Fibonacci support and prior price action makes ₹230 an attractive entry point in my swing trading plan for NCC.
NCC's Sales Growth over 5 years
| Time Period | Sales Growth Rate |
|---|---|
| 1 YEAR | 34.45% |
| 3 YEAR | 17.55% |
| 5 YEAR | 12.05% |
NCC ROE% over years
| Time Period | ROE (%) |
|---|---|
| 1 YEAR | 9.41% |
| 3 YEAR | 7.75% |
| 5 YEAR | 8.72% |
Conclusion
NCC has performed remarkably well in the last four years. From trading at ₹13 in 2020 to reaching an all time high of ₹253, NCC have grown by over 1800%.
While in the short term, the stock can experience profit booking and retrace downside, every opportunity to find the stock at lower levels can lead to new longs.
As the Indian economy is on boom, sectors like construction will see increased demand in the years to come. Long term investors can use these AI forecast for NCC upto 2030 as a base for investment.
