The debate around Nykaa can be broken up into two parts:
- the business and its management
- the stock valuations
For its business, in my opinion, it is one which has very high competitive dynamics. There are boutique brands and regional brands along with pan-India and international brands in this space. Also, in my limited research, I have found that women tend to experiment with products from different brands.
With the bonus fiasco and aggressive IPO pricing, the management has given out a slightly negative perception to the retail investor community.
December is usually a very good quarter for them and we need to await the results for this quarter to see how well it has done.
On the valuation front, it is way too expensive and given the mediocre business characteristics there will likely come a time when the stock will be in a sideways consolidation for years or fall considerably till it comes to a peer-comparable valuation.
What people often forget is that PE players pay a premium for scarcity. In public markets that is not there. A company needs to show profits, longevity of growth and sustainability of business dynamics to be able to command even 2-standard deviation (+ve) valuations.
If one is investing their own money, it is best not to get enamoured by media hype and narratives (sometimes paid for as surrogate ads) and stick to basic common sense business and valuation principles.
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