Sundaram Brake Linings Downgraded to 'Sell' by MarketsMOJO Due to Weak Fundamentals and Expensive Valuation

Sundaram Brake Linings, a microcap company in the auto ancillary industry, has recently been downgraded to a 'Sell' by MarketsMOJO on May 13, 2024. This decision was based on several factors that indicate a weak long-term fundamental strength for the company.
One of the main reasons for the downgrade is the company's poor performance in terms of operating profits, with a negative CAGR growth of -202.94% over the last 5 years. Additionally, Sundaram Brake Linings has a weak ability to service its debt, with a low EBIT to Interest ratio of 0.33. This signifies that the company may struggle to meet its financial obligations.

Furthermore, the company's profitability per unit of shareholders' funds is also low, with a Return on Equity of only 3.65%. This, combined with an expensive valuation of 2.4 Enterprise value to Capital Employed and a negative ROCE of -3.3, makes the stock less attractive to investors.

In terms of its historical valuations, the stock is currently trading at a discount. However, despite generating a return of 104.77% in the past year, the company's profits have only increased by 310.1%, resulting in a low PEG ratio of 0.1.

On a positive note, Sundaram Brake Linings has declared positive results for the last 4 consecutive quarters, with a significant growth in PBT LESS OI(Q) at Rs 3.64 crore, PAT(HY) at Rs 6.02 crore, and OPERATING PROFIT TO NET SALES(Q) at 7.03%.

Technically, the stock is currently in a mildly bullish range, with multiple factors such as MACD, KST, and OBV indicating a bullish trend. However, the majority shareholders of the company are promoters, which may not be appealing to some investors.

In terms of market performance, Sundaram Brake Linings has outperformed BSE 500 in the long term as well as the near term, making it a market-beating stock. However, considering the weak fundamental strength and expensive valuation, MarketsMOJO has downgraded the stock to 'Sell'. Investors are advised to do their own research and make an informed decision before investing in Sundaram Brake Linings.