Salona Cotspin downgraded to 'Sell' by MarketsMOJO due to high debt and flat financial results

Salona Cotspin, a microcap textile company, has recently been downgraded to a 'Sell' by MarketsMOJO on July 8th, 2024. This decision was based on several factors, including the company's high debt to EBITDA ratio of 3.64 times, indicating a low ability to service debt. In addition, the company's financial results for the quarter ending in March 2024 were flat, with a decrease in net sales of -5.3% and a low profit after tax of Rs 0.90 crore.
Technically, the stock is currently in a Mildly Bearish range, with a deteriorating trend since July 8th, 2024, resulting in a -8.34% return. The Bollinger Band and KST technical factors also suggest a bearish trend for the stock.

In the past year, Salona Cotspin has underperformed the market, generating a return of only 2.59% compared to the BSE 500 index's return of 37.98%. However, the company has shown high management efficiency with a ROCE of 15.83% and a healthy long-term growth rate of 40.30% in net sales.

Despite these positive factors, the stock is currently trading at a discount compared to its historical valuations, with an attractive valuation of 8.5 ROCE and an enterprise value to capital employed ratio of 1.3. It is also worth noting that while the stock has generated a return of 2.59% in the past year, its profits have decreased by -65.1%.

The majority shareholders of Salona Cotspin are the promoters, indicating their confidence in the company's future prospects. However, considering the current financial and technical factors, MarketsMOJO has downgraded the stock to a 'Sell' and advises investors to proceed with caution.