For the last few days, shares of Zomato have been on investors' radar. After the lock-in period for the stock ended, shares of the company suffered massive losses. On July 25, the stock suffered a loss of 11% and in the next session on July 26, the stock plunged more than 12%.
However, after the two sessions of massive losses, the stock witnessed some gains rising about 6% and 4% in the next two sessions. In intraday trade on July 19, the stock rose more than 3%.
The valuation of Zomato stock has been a hot topic of debate among investors and analysts.
Finance professor and Valuation Guru Aswath Damodaran, who had valued Zomato just ahead of its initial public offering at about ₹41 per share, has now updated the value of the stock to ₹35 per share.
Many analysts believe the stock will be under pressure in the near term due to uncertainty in the market. However, some of the top brokerages still have strong faith in the stock.
The fundamental view
Global brokerage house Jefferies believes Zomato is a great opportunity for long-term investors. Saying 'the night is darkest before the dawn', Jefferies has given a target price of ₹100 for the stock, indicating an upside of over 100% in the next 12 months. Zomato is the brokerage's 'high conviction buy'.
"Following the sharp correction in Zomato share price, the stock now trades at 0.9 times one-year forward EV/GMV and 3.5 times EV/revenue. While this is at a premium to global and regional peers, this is justified in the context of long growth run-way along with higher explicit medium-term forecasts on GMV (30% for Zomato versus 10-20% for peers). We also see a consistent improvement in profitability in food delivery despite a strong 30% CAGR over FY22-25E (well ahead of global/regional peers)," said Jefferies.
Domestic brokerage firm Kotak Institutional Equities also upgraded the stock to 'buy' from an earlier 'add' rating. The brokerage also raised its target price for Zomato to ₹79 from ₹77 earlier, indicating a potential upside of 73%.
Kotak believes that the recent 18% decline in the stock post the expiry of lock-in of pre-IPO investors was unwarranted, adding that the current market price is baking in fairly pessimistic growth assumptions for the food delivery business.
Technical view
Analyst: Akhilesh Jat, Category Manager - Equity Research, CapitalVia Global Research
The current trend of the stock is looking weak and is expected to move in a downward trend in the near term.
"In the daily chart it is showing that the bearish price waves are much smoother and the bullish pullbacks are less smooth, in this scenario, one should use sell on rise strategy and short on pullback rally during the ongoing downtrend. Currently, bears are facing strong opposition and it may lead pull-back rally to test its immediate resistance level," said Jat.
Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.
