MarketsMOJO downgrades Lyka Labs to 'Sell' due to high debt and weak growth

Lyka Labs, a microcap pharmaceutical company, has recently been downgraded to a 'Sell' by MarketsMOJO on May 7, 2024. This decision was based on several factors, including the company's high debt and weak long-term fundamental strength. Over the past five years, the company's net sales have only grown at an annual rate of 10.75%, while its operating profit has only increased by 17.58%. Additionally, Lyka Labs has a high debt to equity ratio of 4.01 times, which could potentially hinder its future growth.
Furthermore, the company's ROCE (Return on Capital Employed) is at -1.4, indicating an expensive valuation with an enterprise value to capital employed ratio of 3.7. This suggests that the stock is currently trading at a discount compared to its historical valuations. In the past year, while the stock has generated a return of 14.81%, its profits have only risen by 82.3%, underperforming the market (BSE 500) returns of 34.08%.

In terms of recent performance, Lyka Labs declared very positive results in December 2023, with a growth in operating profit of 126.3%. Its operating profit to interest ratio is also the highest at 5.36 times, and its PBT (Profit Before Tax) has grown by 159.34%. Additionally, the company's net sales in the last quarter were the highest at Rs 32.56 crore.

From a technical standpoint, the stock's trend is currently sideways, indicating no clear price momentum. The technical trend has deteriorated from mildly bullish on May 7, 2024, and has generated a negative return of -1.56% since then. Overall, considering the company's high debt, weak long-term growth, and underperformance in the market, it is understandable why MarketsMOJO has downgraded its stock call on Lyka Labs to 'Sell'.