Despite recent improvements in its operational performance, Nykaa's shares are currently considered "too expensive" by market expert Rachit Khandelwal. Speaking on Business Today’s Daily Calls, Khandelwal expressed his reluctance to back the stock at its current levels, raising significant concerns over its premium valuation.
Khandelwal's primary apprehension revolves around Nykaa's staggering 368 Price-to-Earnings (PE) multiple. While acknowledging the company's better financial results in recent quarters, he argued that such an elevated earnings multiple leaves little room for comfort and is difficult to justify for a business with unclear long-term differentiated economics.
Valuation Concerns Overshadow Fundamentals
For investors eyeing short-term gains, Khandelwal’s assessment is critical. He emphasized that even if a stock's fundamentals improve, an already stretched valuation means any slight disappointment in growth, margins, or execution could severely impact returns. This risk, he believes, is central to Nykaa's current market position.
Questions on Business Uniqueness
Beyond the valuation metric, Khandelwal also questioned Nykaa’s business model uniqueness. He stated, "I really don’t see any reason for us to buy such an expensive stock," drawing comparisons to other richly valued new-age businesses. While some peers command high multiples, he noted that their valuations are often justified by more distinct operating models or platform advantages, a characteristic he doesn't readily associate with Nykaa.
"Nykaa business, I don’t understand how exactly it is unique," Khandelwal remarked, distinguishing it from platform businesses like Eternal, Swiggy, or Zepto, which typically receive premium valuations for their scale and category-defining models.
Market Cap vs. Profit Mismatch
Another significant point raised by Khandelwal is the considerable disparity between Nykaa’s market capitalization and its profitability. He highlighted that the company is trading at approximately ₹1 lakh crore market capitalization, yet its operating profit stands at a comparatively modest ₹236 crores. This substantial gap, in his view, renders the risk-reward proposition unattractive for potential investors.
In conclusion, Khandelwal's stance remains unambiguously cautious. While Nykaa's improving sentiment from recent quarterly results is noted, he asserts that not every turnaround automatically warrants an investment. "I’m not comfortable. I would like to refrain myself from getting into a stock like this," he concluded, signaling a clear 'hold' or 'avoid' recommendation at present.