The shares of leading online food delivery platform Zomato have seen a remarkable rally over the past year, surging nearly 200% from their 52-week low touched in January 2023.
Zomato Share Hits New Highs
On Friday, December 22nd, Zomato’s share price ended 0.35% higher at Rs 128 on the BSE, taking the company’s market valuation to Rs 1.11 lakh crore. The share came close to hitting its 52-week high of Rs 131.75 reached last week on December 19th.
Over the past year, Zomato’s share price has zoomed 116.28%. More significantly, the share has delivered a whopping 111.62% returns just in 2023 so far.
Zomato’s market resurgence comes after the share hit a 52-week low of Rs 44.35 on January 25th this year. Since then, the share has nearly tripled, posting 195% gains in less than 12 months.
What’s Driving Zomato’s Share Price Higher?
Several factors have contributed to the sharp upside in Zomato’s stock over the past several months:
- Robust Financial Performance: After posting losses for several quarters, Zomato swung to a net profit of Rs 36 crore in Q2 FY24 against a net loss of Rs 251 crore in Q2 FY23. Its revenue soared 72% YoY to Rs 2,848 crore.
- Growth in Key Segments: Zomato’s core food delivery business has witnessed strong growth driven by increased order volumes and robust addition of new customers. Its other venture Blinkit also turned operationally profitable in Q2.
- Expansion Plans: Zomato aims to expand Blinkit’s 10-minute grocery delivery service to more cities to drive higher growth. It also continues to penetrate deeper into the huge untapped online food delivery market in India.
- India Growth Potential: As internet and smartphone penetration rises rapidly in India, the online food tech segment possesses massive growth runaway ahead. Zomato is well-placed to capitalize on this potential.
- CLSA’s Bullish Target: Global brokerage CLSA sees further upside in Zomato share with a price target of Rs 168 per share. It believes Zomato’s quick commerce segment Blinkit will turn EBITDA positive in FY25.
Technical View
Technically, Zomato share has shown strength recently. As per analysts:
- The share has made a series of ‘higher lows’ indicating an uptrend. After moving past the previous high of Rs 126, the uptrend has strengthened.
- The Relative Strength Index (RSI) of 61 signals the stock is neither overbought nor oversold currently.
- Zomato’s share price trades above its 5, 20, 50 100 and 200-day moving averages – a robust positive sign.
- Immediate support for the stock exists at Rs 120 and the 50-day moving average level. The next near-term target is seen at Rs 140.
Should You Buy Zomato Shares Now?
Despite the sharp surge in 2023, some analysts remain positive on Zomato share citing significant upside potential from current levels.
Zomato possesses multiple competitive advantages. It has achieved tremendous scale and network effects in the food delivery space in India. The company continues to disrupt the huge food services industry by harnessing technology.
Its investments in the promising quick commerce (q-commerce) segment via Blinkit also offers a massive future growth avenue. As Blinkit starts delivering profits from FY25, it could prove to be a game-changer for Zomato.
That said, Zomato shares have already run up a lot coming on the back of record delivery volumes and revenue growth seen over the past year which may have got priced-in.
Valuations also appear rich, with the stock trading at nearly 9x FY24 estimated revenue. Profitability still remains inconsistent even if the recent quarter’s bottomline beat market estimates.
Thus, investors should wait for any significant corrections in the stock to accumulate for long-term gains. Those who missed catching Zomato share at lower levels earlier may avoid buying at current elevated valuations due to high risk.
Overall, while Zomato remains a good pick in the online food services space in India, limit purchases to every major dip to lower risks substantially.