Despite a 26% dip, analysts on Wall Street believe there is upside in Instacart (NASDAQ:CART), citing the company's current valuation as attractive.
Shares of Instacart fell more than 26% since their initial public offering (IPO) a month ago, possibly due to the persisting macroeconomic headwinds in the US. But analysts on Wall Street see the grocery delivery firm’s valuation as attractive, with JPMorgan (NYSE:JPM) and Citi offering ‘Buy’ ratings on the stock.
Instacart Positioned ‘to Play a Key Role’ in Grocery Market’s Online Transformation
Since debuting through an IPO last month, shares of Instacart crashed more than 26%, pushing its valuation down to around $6.8 billion from the nearly $10 billion reached on the first trading day. However, the significant slump appears to have not reduced the stock’s appeal among Wall Street analysts.
On Monday, JP Morgan strategist Doug Anmuth rated Instacart’s stock as ‘Overweight’ – the equivalent of a ‘Buy’ rating. According to the analyst, the grocery delivery company is currently trading at an attractive valuation, and its shares should rise as the broader industry rebounds.
Anmuth expects online grocery sales to account for over 25% of the total grocery spending in 8 to 10 years, up from 12% last year.
“And Instacart is well positioned as the market leader to play a key role in this shift & capture incremental share.”
– he wrote.
At the moment, Instacart has an enterprise valuation of six times JP Morgan’s forecast for its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This represents a 32% discount to the average valuation of its delivery rivals, such as Uber (NYSE:UBER) and DoorDash (NASDAQ:DASH).
In contrast to Anmuth, other analysts from prominent investment firms like Bernstein and Gordon Haskett offered more cautious views on Instacart’s stock, rating it as Neutral due to intense competition in the market and worries over discretionary spending in the near term.
Anmuth acknowledged those headwinds but said Instacart’s first-mover advantage in the grocery delivery market reassured him.
Meanwhile, Citi analysts led by Ronald Josey also issued a ‘Buy’ call for Instacart, citing a “compelling” valuation.
Despite the Stock Price Slump, Instacart Helped Revive the IPO Market
JPMorgan’s updated views on Instacart’s stock come roughly a month after the company went public in its Nasdaq debut. Its shares closed their first trading session 12% higher, down from the intraday high of 43%.
The company’s IPO was priced at the top end of the $28 to $30 price range, raising $660 million, $237 million of which went to investors who sold the stock in the offering. The listing valued Instacarta at almost $9.9 billion at the time, compared to the $39 billion the company was worth after its last funding round in 2021.
Instacart’s IPO was one of the three big that took place in September, with the other two being SoftBank’s chipmaker Arm and marketing automation platform Klaviyo (NYSE:KVYO). All three companies witnessed strong investor interest on their debut days, indicating a resurgence in the IPO market following a nearly 2-year drought.
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