Zomato share price: Stock hits new life low on Friday – What should investors do?

Shares of food aggregator Zomato on Friday touched a new record low of Rs 57.65 per share on the BSE intraday.

The stock has been on a continuous decline since the start of this year, it has slumped over 56 per cent year-to-date: PTI

Shares of food aggregator Zomato on Friday touched a new record low of Rs 57.65 per share on the BSE intraday. The stock has been on a continuous decline since the start of this year, it has slumped over 56 per cent year-to-date, and has cracked almost 27 per cent in a month.

Amid the free-fall in Zomato shares, Santosh Meena, Head of Research, Swastika Investmart Ltd said, “Investors have realized that the profitability and cash flows are more important than just revenue growth & their sky-high valuations aren’t sustainable.”

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“The company is still a loss-making one, and it is expected to break even in terms of operating profitability by FY24, the company was demanding an FY21 P/S multiple of 29.9x during its IPO which was high compared to its global peers, hence, a reality check has led to such severe correction.”

The counter has dipped to a record low, losing over 66 per cent from its lifetime high of Rs 169.1 per share touched on November 16, 2021.

Another analyst, Raghvendra Nath, Managing Director – Ladderup Wealth Management Private Limited said, “Zomato is a new age business is incurring losses. Investing in such businesses requires enormous patience. Investing in such businesses requires certain maturity and a long-term vision.”

He added, “Zomato is building a new way of dining for people and only time will tell if the business model will turn profitable or not. This kind of business model brings in a lot of uncertainty and which gets resolved only in long run.”

“Any such new-age business is a high-risk bet and that is the reason why these kinds of businesses have remained in the private equity domain. Investors willing to take high risk and are patient with their investment are ultimately rewarded with higher returns,” Nath said in his comment on stock.

Terming correction in Zomato as unsurprising, Richa Agarwal, Senior Research Analyst at Equitymaster said, “Amid nervous markets and disappointing results of some of the most hailed companies in the tech space, globally, the tech hype is finally wearing off. For loss-making businesses that seemed priced to perfection, the reality is finally sinking in.”

“The company has aggressive plans to invest in startups and new age business models, most of which we believe will be loss-making. And this approach only makes it harder to assign a value to Zomato. It’s a business that perhaps would fall into the ‘hope investing’ bucket,” Agarwal also said.

She believes it makes sense to try optionalities when the core business is profitable, however, with core business far from profits, and with not so illustrious history when it comes to making investments, do not offer comfort businesses like Zomato.

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