Investing.com -- When considering which European ePharmacy stock to own, the latest market dynamics suggest a clear preference for Redcare Pharmacy (ETR:RDC) over DocMorris (SIX:DOCM).
Analysts at HSBC (LON:HSBA) have updated their recommendations in a note dated Wednesday, reflecting the diverging performances and prospects of these two players in the European ePharmacy space.
Redcare Pharmacy has consistently shown strong momentum, particularly in its over-the-counter business, where it has delivered strong growth for twelve consecutive quarters.
This contrasts sharply with DocMorris, which has struggled with weaker-than-expected results in the burgeoning eRx market, especially in Germany.
HSBC analysts point to the stark gap in growth between the two companies, with Redcare Pharmacy outperforming DocMorris, both in terms of revenue and operating metrics.
This outperformance has driven HSBC to upgrade Redcare Pharmacy’s stock to "buy" from "hold," increasing its target price to €155 from €140.
Redcare Pharmacy's competitive edge appears to stem from its marketing strategy, particularly its celebrity-focused advertising campaigns, which have resonated well with consumers.
This has allowed Redcare Pharmacy to capture more market share in the eRx space, a crucial area for future growth in the ePharmacy market.
HSBC indicates that, if this trend continues, Redcare Pharmacy could continue to outgrow DocMorris in the eRx segment, further solidifying its market leadership.
On the other hand, DocMorris has been facing multiple headwinds. HSBC has downgraded the stock to "hold" from "buy," cutting its target price to CHF40 from CHF75.
DocMorris has struggled with the slower-than-expected ramp-up in eRx adoption, and its higher-than-anticipated investment in customer growth has weighed on its profitability.
“For now, we expect the bigger profitability impact to be on DOCM (rather than RDC), pushing back the path to adj. EBITDA break-even by one year from 2025e to early 2026e,” the analysts said.
HSBC analysts also flag the growing divergence in operational momentum between the two companies. DocMorris has been forced to lower its guidance due to these challenges, further emphasizing the gap between it and Redcare Pharmacy.
Despite this, DocMorris is not without its potential upside, particularly if it can successfully pivot its strategy and capture greater market share in the eRx space in the long run.