Parag Milk Foods Downgraded to 'Sell' by MarketsMOJO Due to Weak Fundamentals and Technical Factors

Parag Milk Foods, a smallcap FMCG company, has recently been downgraded to a 'Sell' by MarketsMOJO on October 25, 2024. This decision was based on several factors, including weak long-term fundamental strength, poor ability to service debt, and low profitability per unit of shareholders' funds.
One of the main reasons for the downgrade is the company's weak CAGR growth in operating profits over the last 5 years, which stands at -2.62%. Additionally, the company's EBIT to Interest ratio is also low at 0.31, indicating a weak ability to service its debt. Moreover, the company's Return on Equity (ROE) is only 5.81%, which is considered low in terms of profitability.

From a technical standpoint, the stock is currently in a Mildly Bearish range and has been generating negative returns since the downgrade. The MACD and KST technical factors are also Mildly Bearish, further supporting the 'Sell' call.

Another concerning factor is that despite being a smallcap company, domestic mutual funds hold only 0.06% of the company. This could suggest that they are not comfortable with the company's current price or business.

In the last year, while the market (BSE 500) has generated returns of 33.56%, Parag Milk Foods has underperformed significantly with negative returns of -3.58%. This further supports the 'Sell' call on the stock.

However, there are some positive factors to consider, such as the company's positive results in June 2024, with a growth of 135.77% in PBT LESS OI(Q) and the highest ROCE (10.29%) in the last half-year. Additionally, the company's debt-equity ratio is at its lowest at 0.71 times.

Furthermore, with a ROCE of 8.8, the company has a Very Attractive valuation with a 1.9 Enterprise value to Capital Employed. The stock is also currently trading at a discount compared to its average historical valuations. In the past year, while the stock has generated negative returns, its profits have increased by 49.8%, resulting in a PEG ratio of 0.5.

In conclusion, while Parag Milk Foods may have some positive aspects, the overall outlook for the company is not favorable, leading to the 'Sell' call by MarketsMOJO. Investors should carefully consider these factors before making any investment decisions.