Nettlinx Receives 'Hold' Rating After Positive Results, But Long-Term Strength and Promoter Confidence Raise Concerns

Nettlinx, a microcap IT software company, has recently received a 'Hold' rating from MarketsMOJO. This upgrade comes after the company has declared positive results for the last three consecutive quarters. The company's PAT (HY) has increased to Rs 2.86 crore and its net sales (Q) have grown by 27.9%.
Technically, the stock is in a bullish range and has shown improvement since March 5, 2024, generating a return of 19.9%. Multiple factors such as MACD, Bollinger Band, KST, and OBV are also indicating a bullish trend for the stock.

However, the company's long-term fundamental strength is weak with a -142.20% CAGR growth in operating profits over the last five years. Its return on equity (avg) is also low at 5.61%, indicating low profitability per unit of shareholders' funds. Additionally, with a ROCE of 8.2, the stock is currently trading at a very expensive valuation with a 5.8 enterprise value to capital employed.

Despite the recent increase in profits by 520%, the stock is trading at a discount compared to its average historical valuations, with a PEG ratio of 0.1.

Moreover, there has been a decrease in promoter confidence as they have reduced their stake in the company by -2.09% over the previous quarter. Currently, promoters hold 58.71% of the company, which may signify reduced confidence in the future of the business.

In the last year, Nettlinx has underperformed the market, generating a return of only 2.71%, while the market (BSE 500) has returned 37.37%. Overall, while the company has shown positive results in the last few quarters, its long-term fundamental strength and promoter confidence may be a cause for concern for investors.