Zomato’s stock has been on an impressive run, delivering substantial returns over the past year. The stock has surged by over 200% since its 52-week low in August 2023, making it one of the standout performers in the Indian market. With such a meteoric rise, investors are now debating whether Zomato still holds multi-bagger potential or if it’s becoming overvalued.
Zomato’s Recent Performance
Zomato’s stock has been riding high on the back of its strong financial performance. In Q1 FY25, the company reported a net profit of ₹253 crore, a massive jump from ₹2 crore in the same quarter the previous year. This marked the fifth consecutive quarter of positive earnings, driven by growth across its core segments: food delivery, quick commerce (Blinkit), and B2B supply chain (Hyperpure).
The company’s revenue also soared by 74% year-on-year to ₹4,206 crore, with its EBITDA turning positive at ₹177 crore. These results have led many analysts to maintain a bullish outlook on Zomato, with firms like Morgan Stanley and ICICI Securities raising their target prices and projecting significant upside potential for the stock.
Multibagger Potential
Analysts remain optimistic about Zomato’s future, citing its strong market position, especially in non-metro cities, and the rapid growth of its quick commerce business. ICICI Securities, for example, has highlighted Zomato’s improved profitability and operational metrics, suggesting that the stock could see a further 51% upside from its current levels.
Moreover, Zomato’s ability to capture market share from competitors like Swiggy, coupled with its strategic focus on expanding into new verticals like Hyperpure, strengthens its long-term growth potential. The company’s success in reducing losses and improving margins across all its business segments indicates that it could continue to deliver strong returns for investors.
Overvaluation Concerns
Despite the positive outlook, some market observers caution that Zomato’s rapid stock price appreciation could mean it is approaching overvaluation. The stock’s current valuation reflects high expectations for continued growth, and any setbacks in execution, such as increased competition or delays in achieving profitability, could lead to a sharp correction.
Additionally, Zomato operates in a highly competitive market, and the entry of new players or aggressive moves by existing competitors could pressure margins and slow growth. This competitive landscape, combined with the stock’s current high valuation, makes it essential for investors to approach with caution and consider booking profits at strategic levels.
FAQ
1. Why is Zomato considered a multibagger stock?
Zomato is considered a multibagger due to its strong financial performance, market leadership, and significant growth in its key business segments, leading to substantial returns for investors.
2. What are the risks of investing in Zomato at current levels?
Risks include potential overvaluation, increased competition, and the challenge of maintaining profitability in a highly competitive market.
3. What has driven Zomato’s stock price surge in 2024?
The surge is driven by strong quarterly earnings, improved profitability across business segments, and positive market sentiment toward its future growth prospects.
4. Is Zomato’s quick commerce business profitable?
As of Q1 FY25, Zomato’s quick commerce arm, Blinkit, was approaching breakeven, showing significant revenue growth but still operating with a small adjusted EBITDA loss.
5. Should investors buy Zomato stock now?
While many analysts remain optimistic, suggesting further upside potential, investors should consider the risks of overvaluation and monitor market conditions closely before making a decision.