MarketsMOJO Downgrades Century Extrusions to 'Sell' Due to Weak Financial Performance and Limited Growth Potential

On June 5th, 2024, MarketsMOJO downgraded their stock call on Century Extrusions, a microcap company in the aluminium industry, to 'Sell'. This decision was based on several factors that indicate a weak financial performance and limited potential for growth.

One of the main reasons for the downgrade is the company's poor ability to service its debt, with an EBIT to Interest (avg) ratio of 1.74. This suggests that the company may struggle to make interest payments on its debt, which could lead to financial difficulties in the future.

Additionally, Century Extrusions has a low Return on Equity (avg) of 8.10%, indicating that the company is not generating significant profits per unit of shareholders' funds. This is further supported by the company's flat results in March 2024, with the lowest operating profit to interest ratio and PBT less OI (Q) at Rs 1.92 crore.

Furthermore, the company has shown poor long-term growth, with net sales growing at an annual rate of 8.01% and operating profit at 13.98% over the last 5 years. This lack of growth potential is a concerning factor for investors.

In terms of technical trends, the stock is currently trading sideways, indicating no clear price momentum. The technical trend has also deteriorated since June 5th, 2024, with a negative return of -3.59%.

However, there are some positive aspects to consider. With a ROCE of 18.5, Century Extrusions has an attractive valuation and a low enterprise value to capital employed ratio of 1.6. The stock is also currently trading at a discount compared to its historical valuations.

It is worth noting that the majority of the company's shareholders are promoters, which could potentially impact decision-making and shareholder returns.

Despite the recent market beating performance, with a return of 61.56% in the last year, Century Extrusions' profits have only risen by 12.8%. This results in a PEG ratio of 1.5, which may not be sustainable in the long run.

In conclusion, MarketsMOJO's downgrade of Century Extrusions to 'Sell' is based on the company's weak financial performance, limited growth potential, and concerning technical trends. Investors should carefully consider these factors before making any investment decisions.