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 September 19, 2024. This decision was based on the company's weak long-term fundamental strength, with an average Return on Capital Employed (ROCE) of 6.15%. Additionally, the company has shown poor long-term growth, with net sales growing at an annual rate of 2.93% and operating profit at 7.11% over the last 5 years. Furthermore, the company's ability to service its debt is weak, with a poor EBIT to Interest (avg) ratio of 0.23.
One of the main reasons for the 'Sell' rating is the company's expensive valuation, with a ROCE of 3.8 and an enterprise value to capital employed ratio of 3.2. However, the stock is currently trading at a discount compared to its average historical valuations. In the past year, the stock has generated a return of 34.66%, while its profits have only risen by 43%, resulting in a PEG ratio of 0.5.

On a positive note, the company has shown promising results in the June 2024 quarter, with its PBDIT (Q) at its highest at Rs 0.39 crore, PBT LESS OI (Q) at its highest at Rs 0.28 crore, and PAT (Q) at its highest at Rs 0.31 crore.

From a technical standpoint, the stock is currently in a mildly bullish range, with both the MACD and KST technical factors showing a bullish trend.

It is worth noting that the majority of the company's shareholders are non-institutional investors. Overall, while Smiths & Founders (India) may have some positive aspects, the recent downgrade to 'Sell' by MarketsMOJO suggests that investors should approach this stock with caution.