Trent Soars 250% in 1 Year: Will Investors' Interest Last?

Trent Share Price: It is hard to avoid a wave when momentum has been building for too long. This statement holds true for Tata's retail arm, Trent, which continues to attract investor attention owing to whopping returns. With a 140 per cent increase so far this year, 250 per cent over the past year, and a stunning 1,482 per cent return over five years, Trent has become one of the top-performing stocks in the retail sector.

While analysts project this momentum to continue, concerns still loom around the shares' valuation. Trent's PE (Price-to-Earnings) ratio stands at 150, higher than some of its industry peers like Avenue Supermarts and Aditya Birla Fashion and Retail (ABFR).

The stock is currently trading at Rs 7,236.15 price level on the bourses, hardly 1.2 per cent away from its 52-week-high level, reached last month. The stock has remained strong in the past trading sessions when broader markets were stuck in the rangebound zone. In the last one month, the shares of the retail company have delivered a return of more than 13 per cent, way higher than that of broader markets.

As the festive season is about to kick off, with an improving picture of demand, a lot seems to go in favour of Tata's retail powerhouse, so is sky really the limit for Trent?

A fundamental check

In Q1FY25, Trent reported a net profit of Rs 392 crore, a whopping 126 per cent surge from Rs 173.48 crore in the corresponding quarter of the previous year. The company's revenue from operations stood at Rs 4,104.4 crore, marking a 56 per cent increase from Rs 2,628.37 crore recorded in the same quarter last year.

Preeyam Tolia, senior research analyst (FMCG and retail), Axis Securities believes that strong sales growth will continue in the upcoming quarters driven by Trent's focus on rapid store expansion and ongoing assortment renewal, which should result in increased overall footfall.

While the gross margin profile of its major businesses, Westside and Zudio also improved, a key highlight in the recent quarter this time was its fresh food and groceries brand, Star Bazaar. During the first quarter of FY25, Star Bazaar saw a 29 per cent increase in operating revenue and reported a like-for-like (LFL) growth of over 20 per cent.

"The improvement in the earnings profile across all formats, the reduction in losses at Star Bazaar, and the enhanced traction at the InditexJV (Zara) are positive indicators for the company. In recent years, Trent has adopted a small-format store model for Star Food. This, along with competitive pricing and a focus on fresh produce and private labels, has delivered positive results," Tolia said.

The upcoming festive season is also expected to give a positive push to the financial figures of the company as the demand takes an improving path. The growth in private final consumption expenditure (PFCE), which is a key indicator of household consumption, surged to a seven-quarter high of 7.4 per cent in Q1FY24.

What should investors do?

Analysts believe the stock is still on a positive path and any potential dips could present good opportunities for investors to buy or increase their holdings in Trent, thus leveraging its long-term growth potential.

"Investors and traders are encouraged to hold their positions while trailing their stop losses, as the stock demonstrates robust potential for further growth. However, should the stock experience any corrections from these elevated levels, zones around Rs 6,000 and Rs 5,000 can be viewed as strategic opportunities for buying on dips," said Mandar Bhojane, equity research analyst, Choice Broking.

The multibagger stock is also expected to join the Nifty 50 index by the end of September. Recently, Trent also witnessed a bulk deal where Global investor Siddhartha Yog bought nearly Rs 10 Lakh shares of the company, valued at Rs 718 crore from Dodona Holdings Ltd.

Jay Gandhi, DVP of institutional research (consumer discretionary) at HDFC Securities, said that much of the recent momentum (technically) in Trent's stock is owing to the bulk purchases as they have contributed significantly to the stock's daily trading volumes.

"From a technical perspective, the Relative Strength Index (RSI) currently stands at 70.39, a level that is firmly approaching overbought territory. Similarly, the Stochastic RSI has been trading at the maximum level of 100 since the start of the year, suggesting that while the stock is overextended, the bullish trend remains dominant," Bhojane added.

As for now, the momentum continues, but how far it goes will depend on the upcoming demand levels and the Q2 results.