MarketsMOJO Downgrades Zeal Aqua to 'Sell' Due to Weak Fundamentals and High Debt Levels

MarketsMOJO, a leading stock analysis and research firm, has downgraded its stock call on Zeal Aqua to 'Sell' on February 6, 2024. This decision was 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 17.79% and operating profit at 11.63% over the last 5 years.
Another concerning factor is the company's low ability to service debt, with a high Debt to EBITDA ratio of 6.95 times. This was reflected in the company's flat results in September 2023, with a PBT LESS OI(Q) of Rs -0.60 crore, a decrease of -176.92%, and a NET SALES(Q) of Rs 116.40 crore, a decrease of -6.36%.

However, there are some positive indicators for the stock. It is currently in a bullish range and the technical trend has improved since February 2, 2024, generating a return of 10.21%. Multiple factors, such as MACD, Bollinger Band, KST, and OBV, also suggest a bullish trend for the stock.

With an ROCE of 6.2, the stock has a fair valuation with a 1.6 Enterprise value to Capital Employed. It is also trading at a discount compared to its average historical valuations. In the past year, the stock has generated a return of 95.57%, while its profits have risen by 69.3%. The PEG ratio of the company is 0.4, indicating a potential undervaluation.

It is worth noting that the majority shareholders of Zeal Aqua are the promoters, which could be a positive sign for the company's future performance. In the long term, the stock has also outperformed BSE 500, generating market-beating returns.

While MarketsMOJO has downgraded its stock call on Zeal Aqua to 'Sell', investors should carefully consider all the factors before making any investment decisions. The company's weak long-term fundamentals and high debt levels should be taken into account, but the stock's bullish technical trend and fair valuation could also present an opportunity for potential gains.