MarketsMOJO downgrades Sterling Tools to 'Hold' due to debt concerns and decreasing institutional investment

Sterling Tools ., a smallcap company in the fasteners industry, has recently been downgraded to a 'Hold' by MarketsMOJO on November 12, 2024. This decision was based on various factors, including the company's ability to service its debt, which is reflected in its low Debt to EBITDA ratio of 0.82 times.
The company has also shown positive results in the last two consecutive quarters, with a growth in net profit of 40.86% in June 2024. Its ROCE (HY) is the highest at 14.39%, and it has a strong cash position with cash and cash equivalents of Rs 104.99 crore (HY). Additionally, its net sales in the last quarter were the highest at Rs 281.68 crore.

Technically, the stock is currently in a mildly bullish range, with multiple factors such as MACD, Bollinger Band, KST, and OBV indicating a bullish trend. However, with an ROE of 12.3, the stock is fairly valued with a price to book value of 4.2. It is also trading at a discount compared to its average historical valuations.

Over the past year, the stock has generated a return of 57.45%, outperforming the BSE 500 index. However, its profits have only risen by 23%, resulting in a PEG ratio of 1.4.

While the company has consistently generated returns over the last three years, its long-term growth potential seems to be poor, with an annual growth rate of -0.39% in operating profit over the last five years.

Moreover, institutional investors have decreased their stake in the company by -0.68% in the previous quarter, collectively holding only 4.86% of the company. This could be a cause for concern as institutional investors have better resources and capabilities to analyze a company's fundamentals compared to retail investors.

In conclusion, while Sterling Tools . has shown positive results in the short term, its long-term growth potential and decreasing participation by institutional investors may be a cause for concern. Investors are advised to hold their positions and closely monitor the company's performance in the future.