Zomato is a small-cap company operating in the services sector. It was founded in 2010 and runs an online food delivery business that connects customers with restaurants through its app. Most of its revenue, around 90%, comes from commissions paid by the restaurants. Besides this, Zomato also makes money from advertisements within the app and its paid membership plan.

Zomato mainly competes with Swiggy in India, making it a duopoly (two big players). However, a significant portion of India still doesn't have internet access. This means there’s plenty of room for Zomato to grow as more people get online. This could boost future revenue and improve its profitability.

As an investor, if you are looking to buy Zomato shares, here is a complete stock analysis you must consider. Let’s have a look at the 5 things you cannot miss.

For the quarter ending June 30, 2024, Zomato’s total income was Rs. 4,442 crore. This figure marks a 16.99% increase from the previous quarter (Rs. 3,797 crore) and a significant 71.04% rise compared to the same quarter last year (Rs. 2,597 crore). The company also reported a net profit of Rs. 253 crore for this quarter. This shows strong financial growth and the company’s ability to consistently increase its earnings.

Zomato currently lists over 1.4 million restaurants on its platform. Of these, 21,000 are active restaurant partners. In just the first three months of 2023, Zomato added 3,000 new partners. The company also collaborates with 6,500 restaurant partners under its “Zomato Gold program”. Additionally, Zomato employs 8,339 people. It’s a highly popular platform, being the 11^th most visited website worldwide for restaurants and the 2^nd most visited in India as of March 2023.

Over the last three years, Zomato’s stock saw intraday gains of more than 5% in just 4.26% of trading sessions. This means investors earn large daily gains, which is rare. Regarding its expenses, Zomato has kept its interest costs below 1% of operating revenues, which is a positive sign, as it shows a low debt burden.

Recently, analysts gave a “buy signal” for the stock. It was triggered when a “20-day moving average crossover” appeared. For those unaware, it is a technical indicator that often signals upward momentum. Historically, after this crossover, the stock has gained an average of 5.85% within seven days over the past five years.

In terms of stock performance, Zomato delivered a 104.7% return over the last three years. This far outpaces the Nifty 100 index’s return of 43.63%. This shows Zomato’s strong stock performance compared to the broader market.

• Zomato reported a 71.04% income increase and Rs. 253 crore profit in Q2 2024.
• Historically, Zomato’s stock has returned 104.7% over three years. It has significantly outperformed the Nifty 100 index.
• Major global brokerages, including JP Morgan and CLSA, have raised target prices for Zomato shares.

As of October 8, 2024, Zomato has a high price-to-earnings (PE) ratio of 418.11. This clearly shows that the stock is priced much higher compared to its current earnings. For investors, this indicates that the market has high expectations for the company’s future growth. Also, it suggests that investors are expecting the company to achieve strong future earnings. This expectation is probably due to the potential for expansion in India’s untapped markets.

However, it can also be a red flag. Some investors can see it as a sign of “overvaluation” where its price does not reflect the company’s actual profitability.

Recently, JP Morgan raised its target price for Zomato shares from Rs. 208 to Rs. 340 per share and maintained an “overweight” rating. This positive outlook is because of Zomato’s successful expansion of “Blinkit”. The brokerage expects that the acquisition of Blinkit will boost Zomato’s revenues through better margins and advertising income. JP Morgan also believes Blinkit will disrupt e-commerce and the modern retail market. It has even raised its earnings forecasts for Zomato by 15-41% for FY25-27.

Moreover, other global firms like CLSA, UBS, Jefferies, Morgan Stanley, and Nomura have also raised their target prices for Zomato. CLSA sees Zomato as a good pick in India. UBS also raised its target to Rs. 320 due to Zomato’s strong performance in the June quarter, while Jefferies, Morgan Stanley, and Nomura also increased their target prices. All the brokerage firms see strong growth potential in Zomato’s shares.