MarketsMOJO Downgrades Zeal Aqua to 'Sell' Due to Weak Fundamentals and High Debt.

MarketsMOJO, a leading financial analysis firm, has downgraded its stock call on Zeal Aqua, a microcap company in the aquaculture industry, to 'Sell'. This decision is based on the company's weak long-term fundamental strength, poor growth, and low ability to service debt.

According to MarketsMOJO, Zeal Aqua has an average Return on Capital Employed (ROCE) of 5.42%, indicating weak long-term fundamental strength. The company's net sales have only grown by an annual rate of 12.65% and operating profit at 11.63% over the last 5 years, showing poor growth. Additionally, Zeal Aqua has a high Debt to EBITDA ratio of 6.95 times, indicating a low ability to service debt.

The company's recent financial results for the quarter ending in June 2024 also reflect these concerns. The interest expense for the quarter was the highest at Rs 4.03 crore, and the non-operating income was 200% of the profit before tax (PBT). The earnings per share (EPS) for the quarter were the lowest at Rs 0.07.

On the technical front, Zeal Aqua's stock is currently in a mildly bullish range, with its MACD and KST technical factors also showing a bullish trend. However, with an ROCE of 7.2, the stock is considered to have an attractive valuation with a 1.4 Enterprise value to Capital Employed. It is also trading at a discount compared to its average historical valuations. In the past year, while the stock has generated a return of 97.74%, its profits have only risen by 47.5%, resulting in a PEG ratio of 0.4.

The majority shareholders of Zeal Aqua are the promoters, which may raise concerns about the company's corporate governance. However, the stock has outperformed the market (BSE 500) with a return of 97.74% in the last year, compared to the market's return of 39.36%.

In conclusion, MarketsMOJO's downgrade of Zeal Aqua's stock call to 'Sell' is based on the company's weak long-term fundamental strength, poor growth, and low ability to service debt. While the stock may have a technically bullish trend and attractive valuation, investors should carefully consider these factors before making any investment decisions.