Newgen Software Technologies downgraded to 'Hold' by MarketsMOJO due to expensive valuation

Newgen Software Technologies, a midcap IT software company, has recently been downgraded to a 'Hold' by MarketsMOJO on February 12, 2024. This decision was based on the company's high management efficiency, with a ROE of 18.22%, and a low Debt to Equity ratio of 0 times. Additionally, the company has shown positive results for the last 4 consecutive quarters, with a growth of 44.5% in PAT(Q) at Rs 68.35 cr, the highest NET SALES(Q) at Rs 323.65 cr, and a growth of 33.20% in PBT LESS OI(Q) at Rs 68.84 cr.
Technically, the stock is currently in a Mildly Bullish range, with both MACD and KST technical factors also showing a Bullish trend. In the long term, the stock has outperformed BSE 500 and has generated a return of 243.87% in the last 1 year. However, the company's Net Sales and Operating profit have only grown at an annual rate of 14.34% and 15.38%, respectively, over the last 5 years, indicating poor long term growth.

Despite its strong management efficiency, Newgen Software Technologies has a Very Expensive valuation with a 10.4 Price to Book Value and a ROE of 19.7. The stock is currently trading at a premium compared to its average historical valuations. While the stock has generated a high return of 243.87% in the past year, its profits have only risen by 46.1%, resulting in a PEG ratio of 1. This suggests that the stock may be overvalued and investors should hold off on buying until the valuation becomes more reasonable.