Instacart, the popular grocery-delivery app operated by Maplebear Inc. (CART), continues to see its shares decline as one analyst remains cautious about the company's prospects. Jake Fuller from BTIG, in a recent note titled "The Cart is Full," initiated coverage on Instacart with a neutral rating, refraining from setting a specific stock-price target. Although BTIG did not act as one of the underwriters for Instacart's recent IPO, Fuller's analysis adds valuable insights into the market sentiment surrounding the company.
Currently, Instacart's stock has dipped below the $30 level for three consecutive days. It hit an intraday low of $29.95, which is 0.2% below its initial public offering price of $30. However, there was a slight rebound later in the afternoon, with the stock trading just above the IPO price.
After an initial debut price of $42 per share on September 19, Instacart closed its first day of trading at $33.70. Subsequently, the stock dipped to a low of $29.96 before closing at $30.10 on Wednesday and fell further to $29.90 on Thursday, finally closing at $30.65.
Instacart's Growth Potential and Competitive Challenges
Fuller's neutral rating stems from his belief that Instacart's valuation is fair considering the company's modest growth prospects and the increasingly challenging competitive landscape. Notably, other major players like Uber Technologies Inc. (UBER) and DoorDash Inc. (DASH) have also entered the grocery-delivery business, intensifying the market competition.
While Fuller acknowledges some positive aspects such as Instacart's strong market position, low category penetration, ancillary opportunities, and healthy profit margins, he maintains a cautious stance due to the crowded market and modest growth prospects. In his note to clients, Fuller stated, "There are positives here with a strong market position, low category penetration, ancillary opportunities and healthy margins, but modest growth, ramping competition and valuation lead us to a neutral rating."
A Turning Point for Bullish Sentiment
For Fuller to turn bullish on Instacart, he asserts that the stock would need to decrease to the mid-$20s level, representing a discount of approximately 17% from the IPO price.
With Fuller's analysis, there are now two analysts who have initiated coverage on Instacart. The first was Bernie McTernan from Needham who gave the stock a "hold" rating. McTernan cited expectations of online grocery sales falling short of projections and increased competition as reasons for his evaluation.
It remains to be seen how Instacart will navigate the challenges posed by its competitors and sustain its growth trajectory in the increasingly crowded grocery-delivery market. Investors will be closely monitoring the stock's performance in the coming months.
Also read: Klaviyo, Instacart and Arm Holdings' stocks mixed as shine comes off recent crop of IPOs.
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