Arex Industries Receives 'Hold' Rating Upgrade

Arex Industries, a microcap textile company, has recently received a 'Hold' rating from MarketsMOJO. This upgrade comes after the company reported positive results in September 2023, with its net sales reaching a record high of Rs 12.80 crore and PBDIT at Rs 2.40 crore. The operating profit to net sales ratio also saw a significant increase, reaching 18.75%.
Technically, the stock is currently in a Mildly Bullish range, a significant improvement from its previous Mildly Bearish trend on 26 December 2023. The key technical factor, RSI, has also been Bullish since the same date.

In terms of valuation, Arex Industries has an attractive ROCE of 14.4 and a low enterprise value to capital employed ratio of 1.4. The stock is also trading at a discount compared to its average historical valuations. However, its profits have fallen by -34.1% in the past year, despite generating a return of 6.87%.

On the other hand, the company has weak long-term fundamental strength, with a -13.23% CAGR growth in operating profits over the last 5 years. It also has a high debt to EBITDA ratio of 3.29 times, indicating a low ability to service debt. The return on equity (avg) stands at 8.12%, signifying low profitability per unit of shareholders' funds.

Additionally, 42.28% of promoter shares are pledged, which could put downward pressure on the stock prices in falling markets. Arex Industries has also underperformed the market in the last 1 year, with a return of 6.87% compared to the market's (BSE 500) return of 24.32%.

Overall, while the recent positive results and technical trend may be promising, the company's weak long-term fundamentals and high promoter pledged shares may warrant caution for investors. MarketsMOJO's 'Hold' rating reflects a neutral stance on the stock, with no recommendation for buying or selling.