While market pundits remained worried about the impact of the Omicron variant of coronavirus on the outlook for the domestic equities, some penny stocks have managed to deliver skyrocketing returns to investors during these uncertain times. Several stocks from this category have outperformed the smallcap, midcap, and largecap peers. Investing in these comes with their own share of risks. Investors must check the company's revenue model and sustainability of business before investing in penny stocks as they are highly volatile in nature.

One such penny stock that has delivered unrealistic return to its shareholders in the last 3 months is a little-known textile company, SEL Manufacturing. The Ludhiana-based company, operating in various textile sub-segments having facilities for manufacturing cotton yarn, combed yarn, knitted fabrics, knitted garments, and terry towels, has defied gravity with more than 26,000% returns in just three months.

Currently, SEL Manufacturing is under the corporate debt restructuring (CDR) mechanism and faces bankruptcy charges for allegedly cheating a consortium of banks for ₹1,136 crore. The consortium of lenders, led by State Bank of India (SBI), had filed a case under the Insolvency and Bankruptcy Code at the National Company Law Tribunal (NCLT), Chandigarh, on October 12, 2017, to begin a legal proceeding against the company as it failed to repay outstanding debts. Investors must do due diligence before investing in this stock as it has been placed under long term additional surveillance measure (ASM) stage 1 category on the BSE.

SEL Manufacturing company has gained as much as 26,128% in the last three months, with its shares jumping to ₹91.8 on January 24, 2022, from ₹0.35 on October 27, 2021. This means, ₹10,000 invested in this textile stock at ₹0.35 apiece would have now turned into more than ₹26 lakh.

Stock performance undermines weak earnings

The rally in SEL Manufacturing shares was not in line with its financial performance. The textile company reported a net loss of ₹78.77 crore during the first half of the current fiscal, compared with the loss of ₹58.79 crore in the same period last year. However, total income grew nearly four times to ₹189.20 crore in H1FY22, from ₹53.63 crore in H1FY21.

For the second quarter ended September 30, 2021, the company posted net loss of ₹37.22 crore and a revenue of ₹108.65 crore, compared with loss of ₹22.50 crore and revenue of ₹43.95 crore in the previous corresponding period.

In the financial year 2021, SEL Manufacturing reported net profit of ₹5,104 crore compared to net loss of ₹2,541 core in the previous fiscal. The total revenue dropped to ₹192.71 crore in FY21, from ₹367.64 crore in the financial year ended March 31, 2020.

This penny stock surged over 26,000% in less than 3 months

From a 52-week low of ₹0.35 to scaling an all-time high of ₹91.8 in less than three months, SEL Manufacturing had nothing short of a dream journey. With a market capitalisation of ₹222.83 crore, the microcap stock witnessed a record rally of more than 26,000% over the last three months, despite reporting weak earnings during the first half of the current fiscal.

Not just in the short-term period, the stock delivered 5,500% returns in 3 years and 2,100% over the past five years.

Since the beginning of 2022, SEL Manufacturing share price has doubled from ₹44.40 on January 3 to ₹91.8 on January 24. The stock has been gaining for the last nine sessions and has risen 54.6% during this period.

On Monday, shares of SEL Manufacturing opened higher and hit a 5% upper circuit of ₹91.8 on the BSE, in an otherwise weak broader market. In contrast, the BSE ended the day on a bearish note and declined as much 3.5% during the session.

Follow us on Facebook, Twitter, YouTube & Instagram to never miss an update from Fortune India. To buy a copy, visit Amazon.