Remember this 'traditional' approach while investing in new-age stocks like Zomato, Paytm

economictimes.indiatimes.com:

In recent months, hope has been bubbling around the world that digital businesses, which earlier appeared to be perennial lossmakers, may be able to make profits at some point. This hope has mostly been triggered by the build-up of the first quarterly profit that Uber has turned in. This, along with an apparent improvement in the basic numbers of some digital businesses, has led to a rally in some of these stocks.

It’s a curious situation that the supposedly improving prospects of a cab-hailing service worldwide can make people hopeful that the stock of a payment company or a food delivery business might be a good buy. Still, this is the kind of hope that large parts of the markets now run on. Of course, ‘digital businesses’ should not be a category in itself because practically every business is digital nowadays.

So which is this category, and what’s common among these businesses? For an investment analyst like me, the most remarkable thing is the paucity of profits. Profits are central to a business; without profits, there is no survival. I’ve been analysing stocks since 1991, and I find it unbelievable that, in 2023, I have to say this.

For, as long as people have done any kind of business and invested in them, we have all known that profits are a must for survival, and the sooner a business becomes profitable, the better it is. What’s more, the ratio of the capital that a business has employed to the profit it makes, is also important. In this context, it’s interesting that Uber has used up US$25 billion to turn in its first quarterly profit.