While researching for a new stock to buy, one of the first valuation metrics we look at is the price-to-earnings ratio. Before deciding whether it is expensive or cheap, we compare the PE ratio with that of its peers. Since unicorns like Zomato are still in the cash-burning phase, there’s no profit and therefore you’ll get a negative PE ratio. There are no listed peers of Zomato in India either.
So how would you decide whether Zomato’s IPO price band of Rs 72-76 is reasonable or expensive? In today’s special podcast with independent market expert Rajiv Nagpal, we try to simplify valuation metrics for Internet startups that are going to get listed in India soon.
Welcome to the show Mr Nagpal.
1) Beginning with Zomato, a number of startups are going to hit Dalal Street soon. Which valuation metric should investors use for a company like Zomato?
2) We are so used to thinking that galle mein paise aana chahiye. But these startups are still burning cash. Do you think Indian investors are ready to invest in a company that may start delivering profit only after a few years?
3) Despite concerns over valuation, can an investor afford to ignore these new-age IPOs of Zomato, Paytm, Nykaa, etc given their disruptive business models?
4) Once a bunch of these consumer internet stocks get listed in India, what could be the impact on the rating of other traditional consumer stocks? Some of them command very high PE multiples.
Thank you Mr Nagpal. That’s all in today’s special podcast but keep checking this space for more such interesting content. Good bye!