Momentum Pick: Will Zomato’s 21% returns over a month and technical breakouts trigger another leg of rally?

Zomato shares have rallied 21% since June 4, the day of election outcome, as against the 11% surge seen by the S&P BSE Sensex in this period, outperforming the latter by nearly twice. On Tuesday, the stock closed above previous week’s high, registering a weekly breakout. The stock is a momentum pick, say analysts who see up to 20% upside over the current levels.

On Wednesday, Zomato shares hit a fresh 52-week high of Rs 213.80 on the BSE before settling with minor declines at 208.15, down by 0.43%.

While there are several technical indicators to assess if the stock is in momentum or not, ETMarkets has picked Zomato based on its closing above the last week high of 204.70.

Source: Stock Edge

Zomato shares have surged by 175% in the past 12 months while its gains in 2024 so far stand around 70%. The stock is also trading above its 50-day and 200-day simple moving averages (SMAs) with day’s MFI in strongly overbought zone around 81.

Its 1-year beta is at 0.6%. Beta is a measure of stock’s volatility and a number below one is considered to be less volatile.

Expert Take

The stock has been forming higher highs and higher lows for the past four consecutive weeks, indicating sustained buying activity, Rajesh Palviya, Senior Vice President Research-Head Technical & Derivatives at Axis Securities said, adding that the stock has managed to break out of a three-month consolidation range.

Both the daily and weekly strength indicators, such as the RSI, have turned bullish, indicating increasing strength, Palviya said, anticipating the stock to continue rising towards the 240-250 range.

He recommends buying, holding, or accumulating this stock, holding a downside support zone at Rs 195-185 levels.

Rahul Ghose, who is CEO of Hedged.in, sees Zomato strong on the charts both from a medium as well as long term perspective with an estimated upside of 20% from the current levels. In his view, the stock might see some consolidation in the near term as the Nifty looks tired at 24,300 and may see another rally not going beyond 200-300 points. Any close below 192 levels becomes a buying opportunity on this counter.

Nilesh Jain, Assistant Vice President (AVP), Equity Research Technical and Derivatives at Centrum Broking, does not see risk-reward favorable for longs at current levels notwithstanding the current uptrend. One should wait for some dip for fresh entry, Jain said placing the immediate support is at 193 levels.

On the fundamental side, the company has been delivering “outstanding results” over the past 10 quarters, Ghose pointed out.

Zomato has delivered consolidated net profit for four quarters on the trot against net losses in preceding quarters. Its consolidated revenues have been consistently on the up.

The food delivery platform reported a consolidated net profit of Rs 175 crore for the quarter ended March 31, 2024, as against a loss of Rs 188 crore reported in the year-ago period. The revenue from operations in the quarter under review stood at Rs 3,562 crore versus Rs 2,056 crore reported in the corresponding quarter of the previous financial year.

The company’s continued growth in its core food delivery business along with its expansion into new verticals such as grocery and nutraceuticals augurs well for stock’s prospects, Palviya highlighted.

Also Read: Momentum Pick: Will this multibagger’s weekly breakout lead to another leg of rally?

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)