MarketsMOJO downgrades Zeal Aqua due to weak fundamentals and high debt levels

Zeal Aqua, a microcap aquaculture company, has recently received a 'Sell' rating from MarketsMOJO. This downgrade is based on the company's weak long-term fundamental strength, with an average Return on Capital Employed (ROCE) of 5.42%. Additionally, the company has shown poor long-term growth, with net sales growing at an annual rate of 16.49% and operating profit at 11.63% over the last 5 years. Furthermore, Zeal Aqua has a high Debt to EBITDA ratio of 6.95 times, indicating a low ability to service debt.
Despite positive results in September 2024, with a 121.7% growth in PAT(Q) and the highest NET SALES(Q) at Rs 152.16 cr, the technical trend for the stock is currently sideways, showing no clear price momentum. The technical trend has also deteriorated since the downgrade on 19 November 2024, with a -2.98% return since then.

However, there are some positive aspects to consider. With an ROCE of 6.8, Zeal Aqua has an attractive valuation with a 1.2 Enterprise value to Capital Employed. The stock is also trading at a discount compared to its average historical valuations. In the past year, while the stock has generated a return of 52.14%, its profits have risen by 77.5%, resulting in a PEG ratio of 0.2.

It is worth noting that the majority shareholders of Zeal Aqua are the promoters, indicating their confidence in the company's performance. The stock has also outperformed the market (BSE 500) with a return of 52.14% in the last year, compared to the market's return of 24.46%.

In conclusion, while Zeal Aqua may have some positive aspects, the recent downgrade by MarketsMOJO suggests that investors should approach this stock with caution. The company's weak long-term fundamentals and high debt levels may pose a risk to its future performance.