Why is Supreme Engg. falling/rising?

Recent Price Movement and Market Context

Supreme Engineering's share price increase on 03-Dec stands out in the context of its recent performance. Over the past week, the stock has gained 3.03%, significantly outperforming the Sensex, which declined by 0.84% during the same period. The momentum is even more pronounced over the last month, with the stock surging 41.67%, compared to a modest 0.86% rise in the Sensex. This short-term rally suggests renewed investor interest or speculative buying despite the company’s ongoing challenges.

However, this positive price action contrasts sharply with the stock’s longer-term trajectory. Year-to-date, Supreme Engineering’s shares have plummeted by 61.94%, while the Sensex has advanced by 9.90%. Over the last one year, the stock has declined by a staggering 74.05%, whereas the benchmark index gained 6.25%. Even over three and five years, the stock has underperformed significantly, falling 29.66% and 59.04% respectively, while the Sensex posted gains of 38.99% and 97.85%. These figures highlight the company’s sustained underperformance and investor scepticism over an extended period.

Technical Indicators and Trading Activity

On the technical front, Supreme Engineering’s current price is above its 5-day and 20-day moving averages, signalling some short-term bullishness. However, it remains below the 50-day, 100-day, and 200-day moving averages, indicating that the longer-term trend remains weak. The stock’s liquidity is adequate for trading, with volumes sufficient to support reasonable trade sizes, which may have contributed to the recent price rise.

Fundamental Challenges Weighing on the Stock

Despite the recent price gains, the company’s fundamentals remain a cause for concern. Supreme Engineering has not declared financial results in the past six months, which raises questions about transparency and operational health. Over the last five years, the company’s net sales have contracted at an annualised rate of 40.02%, while operating profit has deteriorated sharply by 366.31%. Such steep declines in core financial metrics reflect significant operational difficulties.

The company carries a high debt burden, with an average debt-to-equity ratio of 2.27 times, which increases financial risk and interest obligations. Indeed, interest expenses have risen by 25.46% in the latest half-year period, further straining profitability. Return on equity remains low at an average of 7.63%, indicating limited efficiency in generating shareholder returns.

Moreover, Supreme Engineering has reported negative results for five consecutive quarters. Net sales for the half-year stood at ₹86.6 million, declining by 38.35%, while net profit plunged by 69.04% to a loss of ₹24.21 million. The company’s earnings before interest, taxes, depreciation and amortisation (EBITDA) remain negative, underscoring ongoing operational losses and cash flow challenges.

Investor Sentiment and Shareholding Pattern

The majority of Supreme Engineering’s shares are held by non-institutional investors, which may contribute to higher volatility and speculative trading. The stock’s recent outperformance relative to its sector by 4.95% today could be driven by short-term trading dynamics rather than a fundamental turnaround.

Conclusion: A Short-Term Rally Amid Long-Term Weakness

In summary, Supreme Engineering’s share price rise on 03-Dec reflects a short-term rebound that contrasts with its prolonged fundamental struggles. While the stock has outperformed the benchmark indices in the recent week and month, its long-term performance remains deeply negative, with significant declines in sales, profits, and shareholder returns. The company’s high leverage, negative EBITDA, and absence of recent financial disclosures further dampen confidence.

Investors should approach the stock with caution, recognising that the recent price appreciation does not yet signal a sustainable recovery. The prevailing risks and weak financial health suggest that the stock remains a speculative and high-risk proposition in the current market environment.

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