Zomato Shares Crash 7%, Should You Buy The Stock?

It was a volatile day for the stock of Zomato on Tuesday, which ultimately crashed 7% in trade, after opening in the green. In fact, the shares at one stage in trade were up almost 2-3 per cent, but fell deep into the red and ended the day at Rs 132 on the NSE.

Investors uncertain on “buy” or “sell” for the stock of Zomato

Nobody is sure whether one should buy the stock of Zomato or just sell into the same. "As one of the two leading players in the rapidly growing food delivery market in India, we expect Zomato to deliver over 40 per cent revenue Compounded Annual Growth Rate making it one of the fastest-growing internet companies in the region," UBS Securities said in a recent note. 

While the foreign brokerage remain bullish, some other renowned investors are not. Some veteran investors like Rakesh Jhujhunwala have stayed away from the stock. It is a tight call between brand value and fundamentals according to most analysts. In fact, the company is yet to turn profitable.

Post the listing of the stock, Sneha Poddar, Research Analyst, Broking & Distribution, Motilal Oswal Financial Services Ltd, said, despite the large size of IPO at Rs 9,375 crore and rich valuations, the company saw healthy overall subscription of 38 times.

"There is lot of fancy for such unique and first of its kind listing in the market. Zomato with first mover advantage is placed in a sweet spot as the online food delivery market is at the cusp of evolution," she observed.

At the time of the IPO, most brokerages had subscribe and they got it right. However, the IPO was at Rs 76 and the share is now at Rs 130. So, what does happen is that with a solid movement already happened in the stock, the room for upside maybe limited.

However, stock markets and investors can show over exuberance for a long period of time. This is when stock valuations go for a toss. Simply put valuations of Zomato are stretched and we all know that. However, there is no telling how liquidity can drive stocks as is currently happening.

So, in the game of brand vs fundamentals, brand seems to be winning. Nobody can precisely put a finger and say for how long. Those who have made profits may do well to book the same, as for long term investors, wait for declines, you never know, you may get it much cheaper than where it is now.

What's Zomato into?

According to a recent note by renowned broking firm Sharekhan,  the Zomato technology platform connects customers, restaurant partners and delivery partners, serving their multiple needs.

Customers use its platform to search and discover restaurants, read and write customer-generated reviews and view and upload photos, order food delivery, book a table and make payments while dining-out at restaurants.

According to RedSeer, the company is one of the leading Food Services platforms in India in terms of value of food sold, as of March 31, 2021. During Fiscal 2021, 32.1 million average monthly average users visited its platform in India.

Disclaimer

Investing in stock markets is extremely risky and investors should exercise caution. Invest only if you have an appetite for risk. Neither the author, nor Greynium Information Technologies Pvt Ltd would be responsible for losses incurred based on the above article.