MarketsMOJO downgrades Aavas Financiers to 'Sell' due to expensive valuation and decreasing promoter confidence

On April 23, 2024, MarketsMOJO downgraded its stock call on Aavas Financiers to 'Sell'. This midcap company in the finance-housing industry has been showing signs of being in a mildly bearish range, with its RSI and OBV technical factors also being bearish.

One of the reasons for this downgrade is the company's expensive valuation, with a price to book value of 3.6 and a ROE of 13.2. This is higher than its average historical valuations, indicating that the stock is trading at a premium. Additionally, while the stock has generated a return of 1.94% in the past year, its profits have only risen by 13.6%, resulting in a PEG ratio of 2.

Another concerning factor is the decrease in promoter confidence. Promoters have reduced their stake in the company by -12.63% in the previous quarter and currently hold only 26.47% of the company. This could suggest a lack of confidence in the future of the business.

In the last year, Aavas Financiers has underperformed the market, with a return of 1.94% compared to the BSE 500's return of 38.02%. However, the company does have strong long-term fundamental strength, with an average ROE of 12.37%. It has also shown healthy growth in net sales and operating profit, with annual rates of 21.82% and 20.97%, respectively.

In more positive news, the company's results in December 2023 showed its highest net sales and PBDIT (profit before depreciation, interest, and taxes) at Rs 508.07 crore and Rs 373.85 crore, respectively. This could potentially indicate a turnaround for the company in the future.

Overall, with the stock being in a mildly bearish range and other factors such as expensive valuation and decreasing promoter confidence, MarketsMOJO has downgraded its stock call on Aavas Financiers to 'Sell'. Investors should carefully consider these factors before making any decisions regarding this stock.