MarketsMOJO Downgrades Virgo Global Stock to 'Sell' Due to Weak Long-Term Performance and Expensive Valuation

On May 14, 2024, MarketsMOJO downgraded their stock call on Virgo Global, an IT software company in the microcap industry, to 'Sell'. This decision was based on several factors that indicate weak long-term performance for the company.

One of the main reasons for the downgrade is the company's weak long-term fundamental strength. Virgo Global has an average Return on Capital Employed (ROCE) of 0%, which is below the industry average. Additionally, their operating profit has only grown at an annual rate of 6.81% over the last 5 years, indicating poor long-term growth.

Another concerning factor is the company's low ability to service debt. With a high Debt to EBITDA ratio of 0 times, Virgo Global may struggle to meet its financial obligations in the future.

In terms of valuation, the stock is currently trading at a premium compared to its historical average. With a ROCE of 3.1 and an Enterprise value to Capital Employed ratio of 8.3, the stock is considered to be very expensive.

Over the past year, Virgo Global's stock has underperformed the market (BSE 500) by generating negative returns of -28.90%, while the market has seen a return of 32.70%. This indicates that the company has not been able to keep up with the overall market performance.

However, there are some positive factors to note. The company has declared positive results for the last 7 consecutive quarters, and their Debtors Turnover Ratio (HY) is at a high of 11.27 times. Additionally, their net sales have grown by 28.5% and their PBDIT (Q) is at a record high of Rs 0.61 cr.

From a technical standpoint, the stock is currently in a mildly bullish range. Multiple indicators such as MACD, KST, and OBV suggest a bullish trend for the stock.

It is also worth noting that the majority of shareholders for Virgo Global are non-institutional investors. This could potentially lead to higher volatility in the stock price.

In conclusion, MarketsMOJO's downgrade of Virgo Global's stock to 'Sell' is based on the company's weak long-term performance and expensive valuation. While there are some positive factors to consider, investors should carefully evaluate the risks before making any investment decisions.