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Paytm share price has collapsed: buy the dip or sell the rip?

By: Invezz

One 97 Communications (Paytm) share price has been in the spotlight this week as the company came on the verge of collapsing. The shares plunged to a low of INR 400 on Monday, erasing over $2.5 billion in value. It has dropped by over 52% from its highest point in 2023 and by 75% from its record high. If you invested 1 million rupees when the company went public, you would now have 250k.

Why is Paytm collapsing?

Paytm stock price has been in a major freefall in the past few years as the company has struggled to convert its popularity into profits. It has underperformed the broader market with the Nifty 50 and Sensex indices now sitting at their record highs. 

Paytm shares plunged this week after the Reserve Bank of India (RBI) ordered it to stop accepting deposits in its banking and digital wallet division. Most importantly, the company is under a major investigation for breaking financial laws, putting it at a major risk. 

Paytm is now working to save its business. According to CNBC, the management is in talks with senior government officials, including the Minister of Finance. The minister recommended that the company should sort out the issue with the RBI since it was the main regulator.

Paytm was struggling before the current crisis broke. Its business was losing market share to other rivals, including Google, Apple, and Jio. The most recent results showed that its revenue stood at $343 million in the third quarter that ended in December. 

This was 38% YoY growth and was lower than what analysts were expecting. Its EBITDA before ESOP stood at $26 million while the Gross Merchandise Volume (GMV) rose to over $61.3 billion. These numbers should be taken with a grain of salt because of the ongoing investigation.

The current crisis could have a major implication on the company. For one, being barred from receiving deposits makes it difficult to operate. Therefore, the recovery of the stock depends on how the crisis will evolve and whether it will get a reprieve from the regulator. Reliance rejected rumours that it wanted to acquire Paytm.

Paytm share price forecastPaytm share price

Paytm has had a difficult path as a publicly traded company. In this period, the shares have plunged from INR 1,958 to about INR 400. It has constantly made lower lows and investors who bought the dip have all lost money. 

On the daily chart, we see that the stock crashed hard this week and crossed the important support level at INR 440, its previous all-time low. The shares remains below the 50-day and 25-day Exponential Moving Averages (EMA) while the histograms of the MACD have remained below the neutral point since November last year.

Therefore, the outlook for the stock is still extremely bearish as the crisis escalates. This means that the stock could plunge to the key support at INR 350 in the coming months. 

The post Paytm share price has collapsed: buy the dip or sell the rip? appeared first on Invezz

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