Why is Sheela Foam falling/rising?

Recent Price Movements and Market Performance

Sheela Foam’s stock has been under pressure for the past week, registering a decline of 5.92% compared to the Sensex’s marginal fall of 0.06%. Over the last month, the stock has fallen by 11.16%, while the Sensex gained 0.82%. The year-to-date performance is particularly stark, with Sheela Foam down 39.65% against the Sensex’s 8.65% rise. This negative momentum extends over longer periods as well, with the stock falling 23.88% in the last year and 55.56% over three years, in contrast to the Sensex’s robust gains of 7.31% and 36.34% respectively.

On 24-Nov, the stock hit a new 52-week and all-time low of ₹594.1, underscoring the sustained selling pressure. The intraday low represented a 2.54% drop from the previous close. Trading volumes have also shifted, with a weighted average price indicating that more shares were traded near the day’s low, signalling bearish sentiment among investors. Furthermore, Sheela Foam is trading below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—highlighting a clear downtrend.

Investor participation appears to be waning, as evidenced by a sharp 75.24% decline in delivery volume on 21 Nov compared to the five-day average. This reduction in investor engagement may exacerbate price volatility and limit any potential recovery in the near term.

Fundamental Weaknesses Driving the Decline

Despite an attractive valuation metric, with an enterprise value to capital employed ratio of 1.8 and a return on capital employed (ROCE) of 2.3%, Sheela Foam’s fundamentals have been deteriorating. The company’s profitability has been under significant strain, with profits falling by 42.5% over the past year. This decline in earnings is reflected in the stock’s poor returns, which have lagged behind both the Sensex and the broader BSE500 index consistently over the last three years.

Sheela Foam’s operating profits have contracted at a compounded annual growth rate (CAGR) of -16.57% over the past five years, signalling persistent operational challenges. The company’s average return on equity (ROE) stands at a modest 9.36%, indicating limited profitability relative to shareholders’ funds. Moreover, the firm has reported negative results for nine consecutive quarters, with the latest quarterly profit after tax (PAT) at ₹14.54 crore, down 27.1% year-on-year.

Additional concerns arise from the company’s efficiency ratios. The half-yearly ROCE has dropped to a low of 1.63%, while the inventory turnover ratio is at 0.93 times, suggesting sluggish inventory movement and potential cash flow constraints. These factors collectively paint a picture of a company struggling to generate sustainable returns and operational momentum.

Institutional Holding and Market Sentiment

Institutional investors hold a significant 25.17% stake in Sheela Foam, which typically implies a degree of confidence in the company’s long-term prospects. However, the ongoing decline in share price and weak quarterly results suggest that even these investors may be cautious. The falling delivery volumes and consistent underperformance against benchmarks indicate a lack of fresh buying interest, which is critical for any turnaround in share price.

Conclusion: Why Sheela Foam Is Falling

Sheela Foam’s share price decline on 24-Nov is a reflection of deep-rooted fundamental weaknesses and a prolonged period of underperformance relative to market indices. The company’s shrinking profits, negative quarterly results, and poor operational metrics have eroded investor confidence. The stock’s failure to hold above key moving averages and the new 52-week low further reinforce the bearish outlook.

While the valuation appears attractive on certain metrics, the lack of growth and profitability challenges overshadow these positives. The subdued investor participation and institutional caution suggest that the stock may continue to face downward pressure until there is a clear improvement in financial performance and operational efficiency.

Limited Time Only! Subscribe for Rs. 12,999 and get 1 Year of MojoOne + an Additional Year Completely FREE. Don't miss out on this exclusive offer. Claim Your Free Year →