MarketsMOJO downgrades Smiths & Founders (India) to 'Sell' due to weak fundamentals and expensive valuation

Smiths & Founders (India), a microcap company in the castings/forgings industry, has recently been downgraded to a 'Sell' by MarketsMOJO on October 7th, 2024. This decision was based on several factors, including weak long-term fundamental strength with an average Return on Capital Employed (ROCE) of 6.15%, poor long-term growth with only a 2.93% annual growth in Net Sales and 7.11% in Operating profit over the last 5 years, and a weak ability to service its debt with a poor EBIT to Interest ratio of 0.23.
In addition, the company's valuation is considered very expensive with a 3.3 Enterprise value to Capital Employed and is currently trading at a discount compared to its historical valuations. However, over the past year, the stock has generated a return of 45.95%, with profits rising by 43%, resulting in a PEG ratio of 0.5.

On a positive note, the company has shown positive results in the Jun 24 quarter, with its PBDIT(Q), PBT LESS OI(Q), and PAT(Q) all reaching their highest levels at Rs 0.39 cr, Rs 0.28 cr, and Rs 0.31 cr respectively. Technically, the stock is currently in a mildly bullish range, with both its MACD and KST technical factors also showing bullish signals.

Smiths & Founders (India) has a majority of non-institutional shareholders and has been outperforming the market (BSE 500) with a return of 45.95% in the last year, compared to the market's return of 33.39%. While the company's future potential and investor interest may be uncertain, the current data suggests that it may be a risky investment at this time.