Nykaa shares too expensive despite better fundamentals, says analyst

FSN E-Commerce Ventures Ltd popularly known as Nykaa may have delivered better numbers in recent quarters and seen some improvement in its stock performance this year, but valuation concerns are still overshadowing the near-term investment case. On Business Today’s Daily Calls, market expert Rachit Khandelwal said he is unwilling to back the stock at current levels, arguing that the company’s premium pricing is difficult to justify despite a visible operational recovery.

Valuation Takes Centre Stage

Khandelwal’s sharpest criticism was reserved for Nykaa’s valuation. “The numbers have been good,” he acknowledged, but added that what makes the stock difficult to understand is that it is “trading at three hundred and sixty-eight PE multiple.” In his view, that kind of earnings multiple is simply too rich for a business where visibility on differentiated long-term economics remains unclear.

For short-term investors looking for upside from current levels, that comment is significant. A stock may improve fundamentally, but if expectations are already stretched, any disappointment in growth, margins or execution can quickly weigh on returns. That is the central risk he appears to be flagging in Nykaa’s case.

Questions Over Business Uniqueness

The broader issue, according to Khandelwal, is not just price but positioning. He said, “I really don’t see any reason for us to buy such an expensive stock,” while comparing the situation with other richly valued new-age businesses. Though some peers also command elevated multiples, he suggested investors often justify those valuations on the basis of a more distinct operating model.

On Nykaa, however, he was unconvinced. “Nykaa business, I don’t understand how exactly it is unique,” he said, adding that it does not fit into the same category as platform businesses such as Eternal, Swiggy or Zepto. That distinction matters because markets typically reward uniqueness, scale advantages and category-defining models with sustained premium valuations.

Profitability Versus Market Cap Debate

Khandelwal also pointed to the mismatch between market capitalisation and profit metrics. He noted that the company is “trading at, say, one lakh crore worth of market capitalization,” while its operating profit is “hardly two hundred and thirty-six crores.” That gap, in his assessment, makes the risk-reward unattractive.

The takeaway for investors is clear: while Nykaa’s recent quarters may have improved sentiment, not every turnaround automatically becomes a buy. For now, Khandelwal’s stance remains cautious and unambiguous — “I’m not comfortable. I would like to refrain myself from getting into a stock like this.”