While investors are still upbeat on Zomato stock, experts find it overvalued and expensive

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While investors are still upbeat on Zomato stock, experts find it overvalued and expensive
BCCL
  • Shares of newly listed food delivery company Zomato gained 22% since its listing on July 23.
  • The company’s market capitalisation has reached ₹1.10 lakh crore as of July 26.
  • While Zomato stock is on an uptrend, experts still doubt the fundamentals of the company to have bagged such a huge valuation.
After a strong listing on exchanges on July 23, shares of food delivery firm Zomato continue to impress investors as it gained over 22% from its listing price on July 23.

On July 26, shares of the company closed 11.92% higher at ₹140.85.

Promoters and investors of Zomato made a huge chunk from its 50% premium listing of the shares. However, is the food delivery company, which is into losses, really worth so much of valuation? This question has been bothering many analysts and market experts.

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Ace stock market investor Rakesh Jhunjhunwala, on July 24, has reportedly described the company’s stock as ‘tulip mania’. Tulipmania is a major commodity bubble, which took place in the 17th century when Dutch investors began to madly purchase tulips, pushing their prices to unprecedented highs.

“Show me the cash-flow! Zomato received ₹1 lakh crore market capitalisation yesterday (July 23), but when is it getting ₹3,000 crore of cash-flow? It doesn’t matter how much valuations you get. What is more important is how long the company lasts. The world is giving too much valuations to the digital [sic] change. Such valuations are not sustainable, in my view,” said Jhunjhunwala during a keynote address at an event organised by Equirus.

Not only Jhunjhunwala, but famous valuation expert Aswath Damodaran, Professor of finance at the Stern School of Business said Zomato is a money-losing, cash burning enterprise with overvalued valuation.

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On his blog -- The Zomato IPO: A Bet on Big Markets and Platforms! -- Damodaran explained his rationale on why he said the company’s stock is overvalued and expensive.

“With my upbeat story of growth and profitability, the value that I derive for equity is close to ₹39,400 crore (about $5.25 billion), translating into a value per share of ₹41. That may seem like a lot to pay for a money-losing company with less than ₹2,000 crore in revenues in the most recent year… That said, the stock's pricing (₹72-75 per share) makes it too expensive, notwithstanding my story,” said Damodaran.

Meanwhile, many analysts have cautioned against investing in Zomato due to its history of net losses and anticipated increasing expenses in the future.

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SEE ALSO: Another IPO in July: Rolex Rings to raise ₹731 crore through public listing

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