Shares of Avenue Supermarts, the owner and operator of retail chain DMart, surged as much as 10 percent Monday after the company reported a 110 percent jump in net profit for the July-September period. Avenue Supermarts' net profit came in at Rs 417.8 crore for the second quarter of the current financial year, as against Rs 199 crore for the corresponding period last year.

Share Market Live

NSE

The growth, led by the reopening of stores due to an easing of COVID-19-related lockdown restrictions and rising vaccinations, was in line with analysts' estimates. However, experts expressed caution against buying the stock on the back of its extremely stretched valuation.

Credit Suisse has an 'underperform' rating on the stock with a target price of Rs 3,500. It said the company's quarterly performance was largely in line with expectations after full normalcy was restored with a decrease in COVID infections in the second wave of the pandemic. The brokerage said the company has executed its "everyday low price" strategy but has an extremely stretched valuation.

The stock has risen over 20 percent in the past five days, and 93 percent so far this year. It has gained over 150 percent in the past 12 months.

Also Read | DMart Q2 results: Net profit spikes 110% to Rs 417.8 crore

"Avenue has always been one of those rich premium valuations," market expert Prakash Diwan told CNBC-TV18. "It is an expensive stock; it hasn’t come down; it hasn’t disappointed either because nobody wants to sell it. But this is a stock you buy when there is a wider correction -- an across-the-board kind of correction -- and not specifically wait for anything wrong to happen within DMart performance," he added.

A good time to buy?

Not right now, Diwan indicated. "If the market were to correct significantly from hereon and some of these stocks will lose some ground given some selling, that is the time to buy," he added.

He said at some point, these expensive valuations will start to become justified but "right now it is dull". He said it is a very expensive stock to buy afresh, but if somebody is holding on, they could do so, given the momentum. "But no recommendations," Diwan said.

At the time of publishing this report, the stock was trading over one percent higher at Rs 5,400 on BSE, after hitting a 52-week high of Rs 5,899 earlier in the day.

Stay abreast with latest stock market developments here

First Published:Oct 18, 2021 11:26 AM IST