In a remarkable performance over the past year, Zomato Ltd. (ZOMATO, Financial) has eclipsed the growth of leading global delivery stocks, prompting a flurry of positive revisions in analyst forecasts as the company's profit margins begin to improve.
Compared to its peers in the Bloomberg Intelligence global ride-sharing and delivery index, Zomato has seen the highest number of price target upgrades in the last twelve months. Recent weeks have witnessed upward revisions from at least five brokerage firms, including notable names like Citigroup Inc. (C, Financial) and HSBC Holdings Plc (HSBC, Financial).
With Zomato's value surging nearly 260% since the previous April, it has been a challenge for the consensus to keep pace. However, the shift in earnings estimates from red to black underscores a growing confidence in the company's broader operational capabilities beyond its primary focus on restaurant meal delivery.
Goldman Sachs Group Inc. (GS, Financial) is among those expecting a rise in profit forecasts for Zomato's quick commerce venture, Blinkit. Despite initial skepticism about the profitability of such business models, analyst Manish Adukia notes that forthcoming results should help alleviate these concerns.
Despite the enthusiasm, some caution that Zomato's market rally may be overextended, with signs of the stock overheating. Its current trading at 115 times forward earnings starkly contrasts with the multiples of global counterparts like Uber Technologies Inc. (UBER, Financial), Deliveroo Plc (ROO, Financial), and Meituan (3690, Financial).
Analyst Rahul Jain from Dolat Capital Market Ltd. points out that Zomato's shares are already pricing in over $300 million in profits, a figure that overshadows its recent break-even achievement. Jain is among the few analysts recommending a sell, in contrast to the majority who are bullish on the stock.
ICICI Securities Ltd. analyst Abhisek Banerjee suggests that Zomato's valuation is justifiable given the significant revenue and profit growth projections for the company. He also highlights the stock's parallel movement with Doordash Inc. (DASH, Financial) over the last six months, reflecting an overall positive sentiment towards tech stocks globally.
Banerjee further emphasizes the promising outlook for quick commerce, including grocery delivery, in the Indian market. With Zomato's main rival, Zepto, not listed, the sector is poised for a compound annual growth rate of 29% to reach $36 billion by March 2033.
