Zomato shares fall over 12% in 5 days. Should you buy?
Premium- Zomato shares got listed in July 2021 and the stock is up more than 50% from its IPO issue price of ₹76
Shares of Zomato slumped over 7% to ₹116 apiece on the BSE in Friday's session, tanking about 12% in the last five trading sessions. The market capitalization of the food delivery platform fell below the ₹1 lakh crore mark. The stock got listed in July 2021 and is up more than 50% from its IPO issue price of ₹76.
“The sharp correction witnessed in the recently listed Internet and tech stocks like Zomato are driven primarily by more than 10% correction in Nasdaq over the last month. With an increase in interest rates, tech investors seem to be taking money off the table for the time being. With all technical indicators flashing red we do not see any sharp rebound in tech stocks," said Abhay Agarwal, Founder and fund manager at Piper Serica, SEBI Regd. PMS.
At the same time, Agarwal finds it is a good opportunity for long term investors to add stocks like Zomato to the portfolio since it is a leader in a fast-growing industry that has only one other player.
“Since the company is well funded and has profitable unit level metrics we are not worried about the correction in valuation. But tech companies that do not have a clear path to profitability will not see their prices recover in a hurry," he added.
Technical setup in Zomato shares is also looking weak as the stock in in bearish formation which may drag the stock down to ₹112-110 per share level in near-term, as per analysts.
"The valuations of the company are also not supporting the growth. Zomato is facing a tough competition by Swiggy in many terms mainly having a thinner Metro restaurant network and density vs. Swiggy. We recommend investors to maintain the sell position in the stock," said Ravi Singh, Vice President and Head of Research-Share India.
The new GST rules that came into effect from 1 January, have made food delivery apps liable to pay 5% tax on restaurant services provided by them.
"After tax infused on aggregator, the costing have been increased and the lockdown is also not getting place. Zomato's stock technically also looks weak. Investors can keep stop loss of ₹127 with target price of ₹90," suggested Ravi Singhal, Vice Chairman of GCL Securities.
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Sumeet Bagadia of Choice Broking said that the stock can technically breakdown below 120 levels and has the possibility to reach ₹100 per share in the near-term.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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