Two Stocks Defy Gravity: Debt Low, Profits Soar

Two Indian companies, Thomas Scott and Z-Tech, are emerging as intriguing investment opportunities due to their combination of low debt and solid profits. Thomas Scott, a menswear retailer that has shifted its focus to online sales, has seen its sales compound at an impressive 64% annually over the last three years. This growth is supported by climbing operating margins, which rose from 4% in FY21 to approximately 13% in FY26.

Meanwhile, Z-Tech, an SME specializing in environmental solutions, has demonstrated robust growth through its unique business model. The company designs and builds parks using reclaimed waste and recycles industrial wastewater. Its operating profit margins have expanded significantly, reflecting a shift towards higher-value projects.

Both companies have experienced stock price corrections from their peaks, with Thomas Scott down about 40% and Z-Tech 28%. Investor sentiment appears divided on whether these dips represent buying opportunities. Despite strong profit figures, both firms are currently cash-flow negative due to high inventory days and customer payment terms.

Thomas Scott's borrowings increased significantly in FY26, and its operating cash flow was negative for four consecutive years. Z-Tech's recent profit figures also require careful adjustment for non-core income and tax benefits. Investors are advised to closely monitor cash flow statements and debtor days, especially given Z-Tech's status as an SME stock with inherent risks.