MarketsMOJO Downgrades Patel Engineering to 'Sell' Due to Weak Fundamentals

MarketsMOJO has downgraded its stock call on Patel Engineering, a smallcap company in the capital goods industry, to 'Sell' on April 29, 2024. This downgrade is based on several factors that indicate weak long-term fundamentals for the company.
One of the main reasons for the 'Sell' call is the company's average Return on Capital Employed (ROCE) of 6.93%, which is considered weak. Additionally, the company has shown poor long-term growth with an annual operating profit growth rate of only 14.79% over the last 5 years. This is further compounded by the company's high Debt to EBITDA ratio of 6.77 times, indicating a low ability to service debt.

The company's recent financial results for December 2023 also show a decline in profits, with a -29.9% decrease in PBT LESS OI(Q) at Rs 30.06 crore. Furthermore, 88.67% of the company's promoter shares are pledged, which can put additional downward pressure on the stock prices in falling markets.

While the stock is technically in a Mildly Bullish range, there are multiple factors that suggest a bearish trend, such as the high percentage of pledged shares and the decline in profits. On the other hand, the company's ROCE of 11.8 and Very Attractive valuation with a 1.4 Enterprise value to Capital Employed may seem promising, but it is important to note that the stock is currently trading at a discount compared to its average historical valuations.

Despite the stock's market-beating performance in the last year, with a return of 208.77%, it is still important to consider the weak fundamentals and the recent downgrade by MarketsMOJO. Investors should carefully evaluate all factors before making any investment decisions regarding Patel Engineering.