Meesho shares snap four-day rally, slides 7%; stock to see more downside?

Shares of recently-listed Meesho Ltd. saw a 7 per cent fall on Friday, snapping a four-day rally that took its market capitalisation past the ₹ 1-trillion mark. 

 

The e-commerce firm's stock fell as much as 7.1 per cent during the day to ₹218.9 per share, the biggest intraday fall since December 12 this year. The Meesho stock pared losses to trade 4.3 per cent lower at ₹225.4 apiece, compared to a 0.54 per cent advance in Nifty 50 as of 11:16 AM. 

 

Shares of the company snapped a four-day losing streak and currently trade at 0.5 times the average 30-day trading volume, according to Bloomberg. The counter has risen 102 per cent from its issue price of ₹111 per share. Meesho has a total market capitalisation of ₹1.01 trillion.   CATCH STOCK MARKET UPDATES TODAY LIVE

 

Key reasons for Meesho's share fall

The decline in Meesho’s share price follows caution over technical factors affecting recently listed stocks. 

 

Zerodha's chief executive officer, Nithin Kamath, in a social media post, attributed the short-term gains in IPO stocks to technical factors such as short delivery. He said many traders attempt to short these stocks intraday in anticipation of a decline, but get trapped when the stock hits the upper circuit, leaving them without buyers. Kamath added that limited free float in newly listed stocks further adds to the decline.  ALSO READ | Niraj Cement shares soar 16%, GPT Infraprojects up 13%; Key triggers here

Meesho shares to see more downside? 

Two analysts tracked by Bloomberg have target prices below the current market price of the stock. UBS has set a target price of ₹220 per share, while Choice Broking's target stands at ₹200, compared with the current price of around ₹225. 

 

Choice Broking said that Meesho remains in a high-growth phase of its platform lifecycle and is expected to deliver a 31 per cent revenue compound annual growth rate between FY25 and FY28. Growth is expected to be supported by deeper penetration in value commerce and improving logistics efficiencies as its in-house logistics arm, Valmo, scales up.

 

Despite the strong growth outlook, Meesho is trading at 2.4 times its estimated FY28 enterprise value-to-revenue multiple, well below the peer average of 5.4 times, which the brokerage believes leaves room for meaningful upside as fundamentals strengthen.

 

UBS estimates that Meesho’s net merchandise value will grow at a 30 per cent CAGR between FY25 and FY30. The brokerage expects this growth to be driven by a sharp rise in annual transacting users to 518 million from 199 million over the period, along with an increase in annual ordering frequency to 14.7 from 9.2.