MarketsMOJO Downgrades IZMO to 'Sell' Due to Poor Management and Declining Profits

IZMO, a microcap IT software company, has recently been downgraded to a 'Sell' by MarketsMOJO on October 25, 2024. This decision was based on several factors, including poor management efficiency with a low return on equity (ROE) of 7.77%. This indicates that the company is not generating enough profits per unit of shareholders' funds.
In addition, the company has shown poor long-term growth with an annual operating profit growth rate of only 44.47% over the last 5 years. Its recent financial results for June 2024 also reflect a decline in profits, with PBT LESS OI(Q) at Rs 5.25 crore falling by -10.6% and PAT(Q) at Rs 6.03 crore falling by -7.4%. The debtors turnover ratio (HY) is also at its lowest at 3.32 times.

Furthermore, with a ROE of 8.5, the stock is currently trading at an expensive valuation with a price to book value of 1.8. This is higher than its average historical valuations, indicating that the stock is overpriced. The PEG ratio of the company is also at 1.7, which suggests that the stock may not be a good investment option.

Another concerning factor is that despite its size, domestic mutual funds hold only 0% of the company. This could mean that they are not comfortable with the current price or the business itself. Domestic mutual funds have the capability to conduct in-depth research on companies, so their small stake in IZMO may be a red flag for potential investors.

On a positive note, the company has a low debt to equity ratio (avg) of 0 times, which indicates a healthy financial position. However, the technical trend for the stock is currently sideways, with no clear price momentum. The trend has also deteriorated from mildly bullish on October 25, 2024, and has generated -1.99% returns since then.

Despite its recent market-beating performance with a return of 106.31% in the last year, which is significantly higher than the market (BSE 500) returns of 33.56%, the overall outlook for IZMO is not positive. With a 'Sell' rating from MarketsMOJO and several concerning factors, investors may want to reconsider investing in this microcap IT software company.