Do you hold this stock that is likely to be a reversal candidate?

This stock plummeted after reaching an all-time high of Rs 2629 in October 2021. The scrip though is attracting considerable attention. Continue reading to learn more.

In the month of October 2021, HEG Limited reached an all-time high of Rs 2629. However, this was brief, as the stock quickly began its downward spiral, making a succession of lower peaks and lower bottoms before reaching an all-time low of Rs 891 in June 2022, a drop of nearly 66 per cent from its all-time high in a matter of one year.

Having said that, we've witnessed a renewed interest in this stock as it forms a sequence of higher peaks and higher bottoms after hitting all-time lows. Although Foreign Institutional Investors (FII) have continuously reduced their holdings in this company, Domestic Institutional Investors (DII) have increased their stakes marginally.

HEG Ltd is India's largest manufacturer and exporter of graphite electrodes. It runs the world's biggest single-site integrated graphite electrodes facility. Fundamentally, the company reported revenues of Rs 2,201 in FY22, up from Rs 1,254 in FY21, or a 76 per cent increase.

Furthermore, despite a steady decline in Profit After Tax (PAT) since FY19 and a loss in FY21, the company posted a PAT of Rs 431 crore in FY22. Despite the fact that the debt-to-equity ratio grew to 0.17 in FY22 from 0.09 in FY21, the company remains well positioned.

The only aspect that appears to be worrisome is its Rs 141 crore negative cash flow from operations. This was owing mostly to decreased receivables and increased inventories. This is partly due to its increased debtor and inventory days, which caused its cash conversion cycle to increase from 230 days in FY21 to 331 days in FY22.

In terms of shareholder returns, its Return on Equity (ROE) and Return on Capital Employed (ROCE) was 11 per cent and 12.8 per cent, respectively. The company has also proposed a final dividend of Rs 40 per share, with an ex-date of August 24, 2022.

However, the Relative Strength Index (RSI) is currently trading in the oversold zone at 79.35, while the RSI's 9-day moving average is at 62.82. As a result, a retreat from present levels is possible. However, a positive crossover of the 20-Day EMA and the 50-Day EMA is observed, indicating bullishness in the near term.