Southern Infosys Receives 'Sell' Rating Due to Weak Fundamentals and Overvaluation

Southern Infosys, a microcap IT software company, has recently received a 'Sell' rating from MarketsMOJO. This downgrade is based on the company's weak long-term fundamental strength, with a -4.17% CAGR growth in operating profits over the last 5 years. Additionally, the company's ability to service its debt is weak, with a poor EBIT to Interest (avg) ratio of -0.19. The company has also reported losses, resulting in a negative return on capital employed (ROCE).
Furthermore, with a ROE of 4.7, the stock is currently overvalued with a price to book value of 2.2. However, it is currently trading at a discount compared to its average historical valuations. In the past year, the stock has generated a return of 68.27%, while its profits have only risen by 20%. This results in a low PEG ratio of 0.1, indicating that the stock may be overvalued.

On a positive note, the company has shown growth in its net sales, with a 31.06% increase in the first half of 2024. Its profits have also increased, with a higher PAT of Rs 0.24 cr. The company's ROCE is also at its highest at 5.27%.

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

The majority shareholders of Southern Infosys are its promoters, indicating their confidence in the company's future. However, the recent downgrade by MarketsMOJO raises concerns about the company's performance.

Despite the market-beating performance of the stock in the last year, with a return of 68.27%, it is important for investors to consider the company's weak fundamentals and the recent 'Sell' rating before making any investment decisions.