Trent finds itself on uncertain footing as analyst sentiment turned increasingly bearish last month, placing it among the most pessimistically viewed stocks. According to Moneycontrol's Analyst Call Tracker, 'sell' calls on Trent rose to five in January, up from four in December, while 'buy' calls remained steady at 12 and 'hold' calls held firm at five.
A key factor behind the sustained caution on the stock is its expensive valuations. Brokerage firm Citi noted that the stock commands an EV/EBITDA of 42x its expected FY27 earnings, much higher than the 36x seen for similar plays like Titan and D-Mart.
Another key disappointment for the Trent has been the moderated same store sales growth for the company as it grapples with a slowdown in urban discretionary demand. Moreover, revenue growth for the company has also lagged expectations for a second straight quarter in Q3, further dampening investor sentiment.
The rising caution over further stock upside has not just triggered a heavy selloff of around 8 percent following the company's Q3 announcement, but also sparked a wave price target cuts by brokerages.
Sharekhan also lowered its earnings estimates for Trent after its Q3 numbers, factoring in the likely moderation in store expansion due to portfolio optimisation strategy and higher depreciation than earlier anticipated. Analysts at Nuvama Institutional Equities echoed a similar view as they feel that even though though Trent's 76 new Westside/Zudio stores in Q3 seem like a positive sign, upgrades and consolidations in upcoming quarters may limit overall net store growth.
In addition, a weak demand environment due to a slowdown in urban consumption has also weighed on the company's growth prospects. HDFC Securities, which has a 'sell' call on Trent said that while the company's growth while still healthy in Q3, it continues to moderate.
"Trent remains best-in-class. However, growth momentum is moderating," HDFC Securities said. On top of that, the firm reiterated market concerns over the stock's lofty valuations despite a massive correction of around 37 percent from its peak.
Looking ahead, Sharekhan believes innovation in product portfolio, 100 percent contribution from own brands, aggressive store expansions, scaling up of the Star business and leveraging on digital presence will be key growth drivers for Trent in the medium term.
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