Why is Datamatics Global Services Ltd falling/rising?

Recent Price Movement and Market Performance

On 07-Jan, the stock closed at ₹777.00, down by ₹3.15 or 0.4%. This decline is part of a broader short-term downtrend, with the share price falling by 4.01% over the past week and 7.17% in the last month. Year-to-date, the stock has also declined by 4.01%, underperforming the Sensex benchmark, which has only dipped by 0.30% in the same period. This underperformance is further highlighted by the stock’s three consecutive days of losses, amounting to a cumulative 3.6% drop.

Datamatics Global Services has also underperformed its sector by 2.2% on the day, indicating sector-specific or company-specific factors influencing investor sentiment. The stock is trading below all key moving averages — 5-day, 20-day, 50-day, 100-day, and 200-day — signalling a bearish technical outlook in the near term.

Investor participation appears to be waning, with delivery volumes on 06-Jan falling by 13.53% compared to the five-day average. This decline in trading activity suggests reduced enthusiasm or caution among shareholders, which may be contributing to the recent price softness. Despite this, liquidity remains adequate, supporting trades up to ₹0.11 crore without significant market impact.

Long-Term Performance and Valuation Context

Despite the recent weakness, Datamatics Global Services has delivered impressive returns over the longer term. The stock has appreciated by 11.75% over the past year, outperforming the Sensex’s 8.65% gain. Over three years, the stock’s return has surged by 176.27%, vastly exceeding the benchmark’s 41.84%. Even more striking is the five-year return of 531.96%, which dwarfs the Sensex’s 76.66% rise, underscoring the company’s strong growth trajectory and investor confidence over time.

These returns are supported by solid financial fundamentals. The company reported its highest operating cash flow for the year at ₹223.72 crore and achieved a quarterly PBDIT peak of ₹88.83 crore. Its operating profit to net sales ratio reached a high of 18.12%, reflecting efficient operations and profitability. Furthermore, the company maintains a low debt-to-equity ratio, averaging zero, which reduces financial risk and enhances balance sheet strength.

Valuation metrics also suggest a fair assessment of the stock’s worth. With a return on equity (ROE) of 14 and a price-to-book value of 3.2, Datamatics trades at a premium relative to its peers’ historical averages. The company’s profits have grown by 11.6% over the past year, aligning closely with its share price appreciation. However, the PEG ratio of 2 indicates that the stock’s price growth may be somewhat ahead of its earnings growth, which could temper near-term investor enthusiasm.

Balancing Short-Term Weakness with Long-Term Strength

The recent decline in Datamatics Global Services’ share price appears to be driven primarily by short-term technical factors and reduced investor participation rather than fundamental weaknesses. The stock’s position below all major moving averages signals caution among traders, while the drop in delivery volumes suggests a temporary pullback in demand.

Nonetheless, the company’s robust financial performance, low leverage, and strong historical returns provide a solid foundation for investors. The premium valuation and steady profit growth indicate confidence in the company’s prospects, even as the stock navigates near-term volatility. Investors may view the current dip as a pause within a longer-term uptrend, especially given the company’s track record of outperforming the broader market and its sector.

In summary, while Datamatics Global Services Ltd is experiencing a short-term price correction as of 07-Jan, its underlying fundamentals and long-term growth trajectory remain intact. The stock’s recent underperformance relative to the Sensex and sector reflects technical pressures and cautious investor sentiment rather than a deterioration in business performance.

Get 2 full years of MojoOne Premium for only Rs. 12,999. Subscribe for 1 year and we'll add another year FREE. Offer valid for a limited time. Start Saving Now →