Faze Three downgraded to 'Sell' by MarketsMOJO, underperformance raises concerns

Faze Three, a smallcap textile company, has recently been downgraded to a 'Sell' by MarketsMOJO on September 4th, 2024. This downgrade is based on the company's negative results in June 2024, with a decrease of -37.7% in its PAT(Q) at Rs 7.26 crore. Additionally, its ROCE(HY) has hit a low of 13.39%, and its operating profit to interest (Q) is at its lowest at 5.46 times.
Despite being a smallcap company, Faze Three has only 0.66% of its shares held by domestic mutual funds. This could indicate that these funds are not comfortable with the company's current price or its business. Furthermore, the stock has underperformed the market in the last year, with a return of 22.24%, compared to the market's (BSE 500) return of 37.63%.

However, there are some positive factors to consider. Faze Three has a strong ability to service debt, with a low Debt to EBITDA ratio of 1.29 times. Its long-term growth potential is also healthy, with an annual growth rate of 36.71% in operating profit. Technically, the stock is in a mildly bullish range, with its MACD and KST technical factors also showing bullish signals.

In terms of valuation, Faze Three has a fair ROCE of 13.5 and an enterprise value to capital employed ratio of 2.7. The stock is currently trading at a discount compared to its average historical valuations. However, it is important to note that while the stock has generated a return of 22.24% in the past year, its profits have fallen by -26%.

In conclusion, while Faze Three may have some positive aspects, the recent downgrade by MarketsMOJO and its underperformance in the market may be cause for concern. Investors should carefully consider all factors before making any investment decisions.