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Nykaa Share Price: How many fresh buys can be considered if the price drops?

Highlights:

  • On the third day of listing, the stock saw a steady jump, the price was 2300. preparing to touch
  • The listing was done at twice the offer price of the shares in the IPO
  • But can the current valuation of the heroine last long?

Mumbai: Those who got shares in Nykaa’s IPO, their rupee doubled on the day of listing. With the stock trading above Rs 2,200, analyst Sandeep Sabharwal warns investors that a company with a profit of Rs 60-70 crore may not have a market cap of Rs 1 lakh crore. If a company’s market capitalization exceeds the amount of business it does, that stock is set to see an improvement.

Nyka’s stock is also costlier as compared to year-old companies like Heromotocorp, Cipla, Eicher, Britannia and BPCL. Is this a sign that new companies are hitting the market? In response to that question, while talking to our partner channel ET Now, Sandeep Sabharwal said that there is no such thing as a new age company and the heroine does not even fit its definition.

According to Sabharwal, Nayak is doing the same business in which other consumer companies have been involved for years. The difference is that the heroine is spending a lot of money for growth. Their focus is on growth not on profit. As compared to the companies which have been established in a big way with very good business model and have been in the market for decades, a new company like Nayak cannot go beyond a certain limit.

Commenting on the share price of Nayak, Sabharwal said that the current share price is unlikely to be sustained for long. Calling those who think that the heroine’s part will be maintained “good luck” at this stage, he said that such people do not believe in any theory of valuation economics. Nowadays valuation based on market capitalization and sales ratio is increasing which is not proper.

In fact, the valuation should be based on the company’s profits. For which the new business will have to give some time. But this does not mean that the newly traded shares will trade at 50-60 times or that its market capitalization will cross Rs 1 lakh crore directly on profit of Rs 60-70 crore. Expressing his opinion, Sabharwal said that if we look at her current performance, the heroine’s part cannot last long at this stage. Only those selling shares at this level will make gains. At this price, new entrants will find it difficult to get back their stalled money.

At present, the share of Nayak is trading above Rs 2,200. What should be its fair value considering the company’s sales and profits, said Sabharwal, adding that the stock should be around Rs 500-600.

Disclaimer: The above information is for information only. Its purpose is not to suggest the buy or sell of any stock. Be sure to consult your financial advisor before making any investment.

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