Instacart Shares Continue to Rise, Analyst Recommends Buying

Instacart, also known as Maplebear, has experienced a surge in its stock price recently following a favorable report from Benchmark analyst Mark Zgutowicz. Zgutowicz initiated coverage of the grocery delivery company with a Buy rating and set a target price of $32.

Since going public last September at $30 per share, Instacart has faced concerns regarding its growth prospects and competition from major players such as Amazon.com, Walmart, Uber Technologies, DoorDash, and others. These concerns have put pressure on the stock, but it has managed to rally by 13% this year.

A recent report from Wolfe Research suggested that Instacart could be an attractive acquisition target for Uber, further boosting investor confidence. However, Instacart has not commented on this rumor.

Zgutowicz's research note highlights the undervaluation of Instacart's free cash flow potential and addressable market. Despite expected market share losses to traditional grocers and other intermediaries, the analyst believes that the company's nascent advertising business is not fully appreciated by investors.

While some customers who signed up during the Covid pandemic are using the service less frequently, newer users are showing consistent usage. Zgutowicz also emphasizes that the current slowdown in revenue growth has already been factored into the stock price. Additionally, he believes that Instacart's profitability potential over the next 12 months is not adequately reflected in its valuation.

The report does not touch upon the speculation surrounding a potential takeover of the company.