Milkfood Receives 'Sell' Rating from MarketsMOJO, Weak Fundamentals Raise Concerns for Investors

Milkfood, a microcap FMCG company, has recently received a 'Sell' rating from MarketsMOJO on September 2, 2024. This downgrade is based on several factors that indicate a weak long-term fundamental strength for the company.
One of the main reasons for the 'Sell' rating is the company's poor performance in terms of operating profits, with a -4.50% CAGR growth over the last 5 years. Additionally, Milkfood has a high debt to EBITDA ratio of 3.64 times, indicating a low ability to service debt. The company's return on equity (avg) of 5.77% also suggests low profitability per unit of shareholders' funds.

In the past year, while the market (BSE 500) has generated returns of 38.49%, Milkfood's stock has underperformed significantly with negative returns of -1.30%. This underperformance is a cause for concern for investors.

On a positive note, the company has shown promising results in June 2024, with a growth of 165.91% in PAT (HY) and 118.02% in PBT LESS OI (Q). Its operating cash flow has also been the highest at Rs 20.34 crore.

From a technical standpoint, the stock's trend is currently sideways, indicating no clear price momentum. This is a significant change from its previous mildly bullish trend on September 2, 2024, which has resulted in -3.27% returns since then.

However, Milkfood's valuation seems attractive with a ROCE of 4.5 and an enterprise value to capital employed ratio of 1.6. The stock is currently trading at a discount compared to its average historical valuations. Despite this, its profits have fallen by -8% in the past year, which is a cause for concern.

On a positive note, promoter confidence in the company seems to be rising, with an 8.28% increase in their stake in the previous quarter. Currently, promoters hold 56.03% of the company, which is a sign of high confidence in the future of the business.

In conclusion, while Milkfood's stock may seem attractive in terms of valuation, its weak long-term fundamental strength and underperformance in the market raise concerns for investors. It is important for investors to carefully consider these factors before making any investment decisions.