Scan Steels Downgraded to 'Sell' by MarketsMOJO, Weak Fundamentals and Underperformance in Market.

Scan Steels, a microcap company in the steel/sponge iron/pig iron industry, has recently been downgraded to a 'Sell' by MarketsMOJO on October 14, 2024. This decision was based on weak long-term fundamental strength, with a 13.46% CAGR growth in operating profits over the last 5 years. Additionally, the company has only been able to generate a low return on equity of 6.30%, indicating low profitability per unit of shareholders' funds.
Technically, the stock is currently in a mildly bearish range, with the trend deteriorating from sideways on October 7, 2024. Since then, the stock has only generated a return of 5.17%. Multiple factors, such as MACD, DOW, and OBV, also suggest a mildly bearish outlook for the stock.

In the past year, Scan Steels has significantly underperformed the market (BSE 500), which has generated returns of 35.61%. In contrast, the stock has generated negative returns of -6.89%. However, the company did declare very positive results in June 2024, with a growth in net profit of 79.65%. This trend has continued for the last two consecutive quarters, with PBDIT(Q) at its highest at Rs 24.05 crore, and operating profit to net sales(Q) at its highest at 10.30%. PBT less OI(Q) was also at its highest at Rs 17.84 crore.

Despite the recent downgrade, Scan Steels still has a very attractive valuation, with a ROCE of 6.6 and an enterprise value to capital employed ratio of 0.9. The stock is currently trading at a discount compared to its average historical valuations. In the past year, while the stock has generated a negative return of -6.89%, its profits have risen by 2811%.

It is worth noting that the majority of shareholders in Scan Steels are non-institutional investors. This may suggest a lack of confidence in the company's performance and could be a contributing factor to the recent downgrade. Investors should carefully consider these factors before making any decisions regarding Scan Steels stock.