Vidli Restaurants Receives Stock Upgrade, Shows Strong Growth Potential Despite Debt Concerns

Vidli Restaurants, a microcap company in the hotel, resort, and restaurant industry, has recently received a stock call upgrade from MarketsMOJO. The stock has been upgraded to a 'Hold' rating, indicating a neutral stance on the company's performance.
One of the key reasons for this upgrade is the healthy long-term growth of the company. Vidli Restaurants has shown an annual growth rate of 89.90% in net sales and 88.41% in operating profit. Additionally, the technical trend of the stock has improved from sideways to mildly bullish, with the On-Balance Volume (OBV) indicator showing a bullish trend since November 27, 2024.

However, there are some concerns regarding the company's ability to service its debt. With a poor EBIT to Interest ratio of 1.90, the company's ability to pay off its debt is weak. Moreover, the return on equity (ROE) of 9.58% indicates low profitability per unit of shareholders' funds.

In the last quarter, the company's performance has been flat, with the lowest ROCE (Return on Capital Employed) at 4.52%, lowest debtors turnover ratio at 7.45 times, and a negative PBT (Profit Before Tax) of Rs -0.21 crore. The stock also has an expensive valuation with an enterprise value to capital employed ratio of 2.2.

Despite these concerns, the stock is currently trading at a discount compared to its average historical valuations. In the past year, while the stock has generated a return of 14.96%, its profits have only risen by 6%. This indicates that the stock has underperformed the market (BSE 500) returns of 28.06% in the last year.

Investors should carefully consider these factors before making any investment decisions regarding Vidli Restaurants. While the company has shown strong growth potential, there are also some red flags that need to be taken into account. Overall, the stock is currently in a hold position, and investors should closely monitor its performance in the future.