Salzer Electronics downgraded to 'Hold' by MarketsMOJO, despite strong growth and returns.

Salzer Electronics, a smallcap company in the capital goods industry, has recently been downgraded to a 'Hold' by MarketsMOJO on November 22, 2024. This decision was based on various factors, including the company's healthy long-term growth with an annual net sales growth rate of 24.99% and a 170.1% increase in net profit in September 2024.
The company has also consistently declared positive results for the last four quarters, with its operating cash flow at its highest at Rs 23.77 crore and a return on capital employed (ROCE) of 14.86%. Additionally, its PBDIT (profit before depreciation, interest, and taxes) for the quarter was at its highest at Rs 35.30 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 ROCE of 13.1, the stock is fairly valued with an enterprise value to capital employed ratio of 2.5. It is also currently trading at a discount compared to its average historical valuations.

Over the past year, the stock has generated a return of 177.10%, outperforming the BSE 500 index. However, its profits have only increased by 69.5%, resulting in a PEG ratio of 0.5. This signifies that the stock may be slightly overvalued.

On the other hand, the company has consistently delivered returns over the last three years, outperforming the BSE 500 index each year. However, it has a high debt to EBITDA ratio of 3.01 times, indicating a low ability to service debt. This is further supported by the company's low return on equity (average) of 7.31%, indicating low profitability per unit of shareholders' funds.

It is also worth noting that despite being a smallcap company, domestic mutual funds hold only 0% of the company's shares. This could signify that they are either not comfortable with the current price or have not conducted in-depth research on the company.

In conclusion, while Salzer Electronics has shown strong growth and consistent returns, its high debt and low profitability may be a cause for concern. Investors are advised to hold onto their current positions and monitor the company's performance closely.