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Evaluating Zomato’s Stock Surge: Value Buy or Momentum Trap?

Evaluating Zomato's Stock Surge: Value Buy or Momentum Trap?

18 March 2024 – Zomato Ltd’s stock has experienced a remarkable surge of 235% from its 52-week low, sparking investor interest in its potential as a value buy or a potential momentum trap. Despite recent fluctuations, the stock’s performance prompts a closer examination of its valuation and future prospects.

Analyzing Stock Performance

Trading significantly above its 52-week low, Zomato’s stock has reached a high of Rs 164.45, demonstrating considerable volatility. However, recent weeks have seen a 6% decline, suggesting potential market corrections.

Valuation Metrics

Despite its robust performance, Zomato carries a high price-to-book ratio of 8.36 and a PE ratio of 122, suggesting rich valuations. The book value per share stands at 19.14.

UBS forecasts a 22% upside potential with a target price of Rs 195, anticipating modest quarter-on-quarter growth in Gross Merchandise Value (GMV). HSBC shares a bullish outlook, raising the target price to Rs 200, citing increasing digital spends in India.CLSA assigns a target of Rs 227, factoring in sustained profit growth and market share gains in the food delivery segment.

Financial Performance

Zomato reported a third consecutive quarterly profit in December 2023, signaling positive revenue growth. With a consolidated net profit of Rs 138 crore and a revenue increase of 69% year-on-year, the company demonstrates resilience amidst market challenges.


Conclusion

While Zomato’s stock surge is notable, investors must carefully weigh its valuation metrics and future growth prospects. Analyst recommendations offer varied perspectives, highlighting the need for thorough due diligence before making investment decisions in this dynamic market environment.

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