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 November 11, 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 21.43% 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.
Additionally, the company's valuation is considered very expensive with a 3.7 Enterprise value to Capital Employed and is currently trading at a discount compared to its historical valuations. However, in the past year, the stock has generated a return of 69.34%, with profits rising by 43%, resulting in a PEG ratio of 0.6.

On a positive note, Smiths & Founders (India) has shown strong results in the Jun 24 quarter, with PBDIT(Q) at its highest at Rs 0.39 cr, PBT LESS OI(Q) at Rs 0.28 cr, and PAT(Q) at Rs 0.31 cr. The stock is also technically in a Mildly Bullish range, with multiple factors such as MACD, Bollinger Band, and KST indicating a bullish trend.

The majority shareholders of the company are non-institutional investors, and Smiths & Founders (India) has a track record of market-beating performance in both the long-term and near-term. In the last 1 year, the stock has generated a return of 69.34% and has outperformed BSE 500 in the last 3 years, 1 year, and 3 months. However, considering the current market conditions and the company's weak fundamentals, MarketsMOJO has downgraded the stock to a 'Sell'.