Why is Shoppers Stop falling/rising?

Recent Price Movement and Market Context

Shoppers Stop has recorded a consecutive four-day gain, accumulating a 10.11% return over this period. This recent rally contrasts with the broader market, as the stock outperformed its sector by 2.37% on the day. The intraday high of Rs 441.75 marks a significant recovery, especially considering the stock’s year-to-date decline of 26.84%, which starkly contrasts with the Sensex’s 9.12% gain over the same timeframe.

In the short term, the stock’s one-week return of 9.75% is impressive against the Sensex’s marginal decline of 0.52%. However, over longer horizons, Shoppers Stop has struggled, with a one-year return of -27.13% and a three-year return of -34.62%, both underperforming the Sensex’s positive returns of 4.89% and 37.24% respectively. Despite this, the five-year performance shows a robust 107.98% gain, outpacing the Sensex’s 84.97%, indicating some long-term value creation.

Technical Indicators and Investor Participation

Technically, the stock is trading above its 5-day and 20-day moving averages, signalling short-term bullish momentum, although it remains below its 50-day, 100-day, and 200-day averages, indicating that medium to long-term trends are still under pressure. Notably, investor participation has increased, with delivery volumes on 11 Dec rising by 20.86% compared to the five-day average, suggesting growing confidence among shareholders. The stock’s liquidity is sufficient to support trades of approximately Rs 0.06 crore, making it accessible for active traders.

Valuation and Institutional Interest

From a valuation standpoint, Shoppers Stop presents an attractive proposition with a return on capital employed (ROCE) of 6.6% and an enterprise value to capital employed ratio of 2.3, indicating it is trading at a discount relative to its peers’ historical averages. This discount may be enticing value investors looking for turnaround opportunities. Additionally, the company benefits from a relatively high institutional holding of 28.51%, which often reflects confidence from investors with greater analytical resources and a longer-term perspective.

Challenges Weighing on the Stock

Despite the recent price appreciation, Shoppers Stop faces significant headwinds. The company has reported negative profits for three consecutive quarters, with the latest quarterly PAT plunging by 549.6% to a loss of Rs 20.11 crore compared to the previous four-quarter average. This sharp decline in profitability raises concerns about operational efficiency and earnings sustainability.

Moreover, the company’s financial leverage is a critical risk factor. With a debt-to-equity ratio averaging 36.93 times and a half-year figure peaking at 30.43 times, Shoppers Stop carries a heavy debt burden that undermines its long-term fundamental strength. The low debtors turnover ratio of 5.44 times further indicates potential challenges in managing receivables and cash flow.

Consistent Underperformance Against Benchmarks

Over the past three years, Shoppers Stop has consistently underperformed the BSE500 and other benchmarks, reflecting persistent structural issues. The stock’s negative returns over one and three years contrast sharply with the positive performance of the Sensex and broader market indices, underscoring the company’s struggle to regain investor confidence and market share.

Conclusion: Why the Stock Is Rising Despite Challenges

The recent rise in Shoppers Stop’s share price on 12-Dec can be attributed primarily to short-term technical strength, increased investor participation, and an attractive valuation relative to peers. The stock’s outperformance over the past week and the four-day consecutive gains suggest that traders and some investors are positioning for a potential recovery or value play. Institutional interest and improved liquidity also support this momentum.

However, the company’s weak profitability, high debt levels, and consistent underperformance against benchmarks remain significant concerns. Investors should weigh these fundamental risks carefully against the recent positive price action. While the stock’s discount valuation and short-term momentum may offer opportunities, the underlying financial challenges suggest caution for those considering a longer-term investment.

Limited Time Only! Subscribe for Rs. 12,999 and get 1 Year of MojoOne + an Additional Year Completely FREE. Don't miss out on this exclusive offer. Claim Your Free Year →