MarketsMOJO Downgrades Patel Engineering to 'Sell' Due to Weak Fundamentals and High Pledged Shares

Patel Engineering, a midcap company in the capital goods industry, has recently received a 'Sell' rating from MarketsMOJO on February 1, 2024. This downgrade is based on several factors that indicate a weak long-term fundamental strength for the company.
One of the main reasons for the 'Sell' rating is the company's average Return on Capital Employed (ROCE) of 6.93%, which is considered low. Additionally, Patel Engineering has shown poor long-term growth with an annual operating profit growth rate of only 14.79% over the last 5 years. The company also has a high Debt to EBITDA ratio of 6.77 times, indicating a low ability to service debt.

In the latest quarter, Patel Engineering's results have been flat with a decrease in both PBT LESS OI(Q) and PAT(Q) by -29.5% and -13.8% respectively. Furthermore, 88.67% of the company's promoter shares are pledged, which can put additional downward pressure on the stock prices in falling markets.

On the technical front, the stock is currently in a bullish range and has shown improvement since January 31, 2024, generating a return of -1.52%. Multiple technical factors such as MACD, Bollinger Band, KST, and OBV also indicate a bullish trend for the stock.

Despite the 'Sell' rating, Patel Engineering has a fair valuation with a ROCE of 11.8 and a 1.5 Enterprise value to Capital Employed. The stock is also trading at a discount compared to its average historical valuations. In the past year, the stock has generated a return of 331.38%, while its profits have risen by 21.7%.

In the long term, Patel Engineering has shown market-beating performance, outperforming BSE 500 in the last 3 years, 1 year, and 3 months. However, considering the current weak fundamental strength and high promoter pledged shares, MarketsMOJO has downgraded the stock to 'Sell'. Investors are advised to carefully evaluate their investment decisions before investing in Patel Engineering.