New-age stocks have been falling for quite some time as overvaluation concerns overpowered growth exuberance in such new-age listed companies. Paytm share price is down 28% from its 52-week high, Zomato is down 44%, PB Fintech is down 39%, and Nykaa is down 54%. “Pricey Valuations coupled with lack of earnings visibility continue to plague several New Age stocks across segments and investors are not yet enthused with their quarterly earnings trajectory,” 

New-age stocks to follow India’s performance path

New-age firms are expected to perform as India’s underperformance changes. “New age digital stocks are not doing great primarily because the market is not doing great. India is underperforming this year with a negative 2.34 % return YTD while markets like China, Hong Kong and South Korea are doing very well. When India’s underperformance changes, new-age digital companies also will start performing,”

Long-term growth potential of New-age companies remains huge

While some of the companies like Paytm reported impressive quarterly results, Nykaa’s earnings failed to meet market expectations. “Some results from this segment are very good like Paytm. Zomato also has done reasonably well, but Nykaa’s results came below expectations. The long-term growth potential of these companies is huge and, therefore, in spite of the short-term challenges, these stocks have buyers, particularly after the sharp correction from their listing peak prices,” V K Vijayakumar added.

What should investors do with Nykaa, Paytm, Zomato and PB Fin Tech shares?

Nykaa – Buy – Target Price – Rs 238 – Elara Capital

The brokerage has cut the revenue estimates by 1.9%/11.1% for FY24E/25E, factoring in lower growth in the fashion segment going ahead to attain break-even/profitability but BPC revenue estimates are intact. “We value the core BPC segment at an EV/EBITDA of 65x one-year forward, which leads to a TP of Rs 238. However, a scenario with no break-even or no room for reduced losses in the fashion/others business over the medium term is the only key risk for the above valuations/TP and remains to be a key monitorable” said analysts at Elara Capital.

Paytm – Outperform – Target Price – Rs 800 – Macquarie Research

Paytm has positively surprised the brokerage on the distribution of financial services revenue by a wide margin. “We lower our FY23–25E loss-per-share estimates 18–72% and raise our target price to Rs800.00 from Rs450.00, driven by a substantial increase in revenue numbers and a roll-forward to Dec-24E- from Dec-23-based valuation. We now rate PayTM shares as Outperformer (OP),” said analysts at Macquarie Research.

Zomato – Buy – Target Price – Rs 74 – Nuvama Institutional Equities

The relaunch of Zomato’s Gold membership plan should bring growth back, according to the brokerage, however, the eyes will be on sustainable profitable growth. “We believe that Zomato Gold’s relaunch will be a big boost to growth. Adj. EBITDA of Rs 230 million in food delivery, despite flattish QoQ GOV growth, is a big plus and we remain confident of the company’s ability to generate cash. Our rating is ‘BUY/SO’ with a DCF-based target price of Rs 74,” said analysts at Nuvama Institutional Equities.

PB Fintech – Buy – Target Price – Rs 950 – JM Financial

“PB Fintech has consistently beaten JMFe over the past 3 quarters and we have raised our revenue forecasts with higher profitability to account for the same, resulting in TP rising by 4.4% and implying an 80.6% upside over CMP. While the company has an unparalleled proposition in insurance, the credit business is also growing strongly and could generate significant investor value. We reiterate the ‘BUY’ rating while upgrading Dec’23 target price to Rs 950 from Rs 910 earlier,” said analysts at JM Financial. The brokerage expects higher conviction on profitability and beneficial resolution of regulatory uncertainties to enable greater strength.