Grocery-delivery giant Instacart (CART) went public in September 2023, and while there has been some volatility, it has mostly been up and to the right since then, as the stock is up 78.7% over the past year. However, there’s reason to believe that the stock could have more room to run ahead of it. I’m bullish on Instacart based on its strong long-term growth potential, its innovative new offerings for advertisers (which could unlock additional value), and its excellent Smart Score.
What Is Instacart?
There’s a good chance you’re likely already familiar with Instacart. The $11.5 billion company provides online grocery shopping services to households in North America. It connects consumers with personal shoppers to shop and deliver groceries and other products through both its mobile app and its website.
Tremendous Long-term Growth Potential
Connecting consumers with personal shoppers for grocery delivery is a simple yet effective business model. Yet, it’s one that the company could just be scratching the surface of, which is a reason why I am bullish. While Instacart has become something of a household name for many, online grocery sales currently only account for about 12% of the industry’s sales.
Instacart believes that this ratio could double in the years ahead, which would represent enormous growth potential for the company as groceries are a $1.1 trillion market in the United States.
Instacart Has Additional Growth Drivers Up Its Sleeve
While the online grocery business is lucrative and in its early innings, there’s more to Instacart than simply delivering groceries – the company has an intriguing growth driver in its bag of tricks. Instacart and streaming platform Roku (ROKU) recently announced an expanded partnership that will offer advertisers in the consumer packaged goods (CPG) space “interactive ad formats, enhanced targeting capabilities, and closed-loop measurement” of effectiveness.
Instacart and Roku explain that this format means “consumers are one step closer to effortless and personalized shopping experiences while watching TV in the comfort of their homes.” The new offerings include shoppable ads, which create a “direct path” from ad to purchase via either text message or QR code, which take the viewer to Instacart. These shoppable ads have the potential to be extremely effective and attractive to advertisers.
Imagine a hungry consumer streaming their favorite show, seeing an ad for their favorite snack (or a new one that piques their interest), and using the QR code to instantly order it from Instacart via a seamless experience that removes any friction in the consumer journey. Additional capabilities include ads on the high-traffic Roku home screen that take viewers directly to the product’s page on Instacart, and better targeting for ads based on Instacart purchase history and behavior.
Caper Carts – An Exciting Innovation
The Roku partnership isn’t the only exciting innovation Instacart is working on. Instacart’s new Caper Carts are essentially digitally-enhanced shopping carts with a touchscreen that allows shoppers to scan items as they shop, track spending, automatically weigh produce, browse offers, and skip the checkout line by paying via cart.
These are all great benefits for customers, but Caper Cart also offers advantages for CPG companies as well, as these AI-powered Caper Carts give these companies valuable data and insight into consumer habits, and enable them to target consumers with personalized ads and offers. Last quarter, Instacart noted that over 40% of Caper Cart sessions featured the use of a coupon from one of its retailers.
The Caper Carts are already being used in grocery stores like Kroger (KR), Wakefern, and Price Chopper, and Instacart plans to roll out thousands more Caper Carts by the end of 2024. These innovative Caper Carts are mutually beneficial to grocery stores, consumers, and CPG companies, and another way that Instacart can entrench itself with each of these demographics to solidify its role as an integral part of the future of grocery shopping.
Improving Valuation
Unlike many recent IPOs, another major aspect of Instacart’s appeal is that the company is already profitable. However, given the stock’s strong performance over the past 12 months, it’s unsurprising that shares trade at a premium valuation of 39.2 times consensus December 2024 earnings estimates. That said, with earnings per share projected to grow from $1.14 in fiscal 2024 to $1.37 for fiscal 2025, shares trade at 32.6 times forward earnings estimates.
This is a bit more palatable and a bit closer to the broader market at a time when the S&P 500 (SPX) trades for 24.5 times earnings. Instacart is by no means a value stock, but it is profitable and demonstrates strong earnings growth, so it seems like a good bet to be able to grow into its valuation over time.
It’s important to note that Instacart will report earnings next week on November 12, so we should get plenty of additional insight into the company’s earnings growth then. Strong results could further propel the stock’s continued momentum, while if there is any short-term hiccup that sends shares lower, it could present a good opportunity for long-term investors to start a position in the stock or to utilize a dollar-cost averaging strategy.
Is CART Stock a Buy, According to Analysts?
Turning to Wall Street, CART earns a Moderate Buy consensus rating based on 10 Buys, 10 Holds, and zero Sells assigned in the past three months. The average CART stock price target of $45.46 implies 1.84% upside potential from current levels.
More Upside Remains
Despite Instacart’s surging share price over the past year, I believe the stock has considerable upside ahead. I’m bullish on Instacart based on the significant growth potential of the online grocery delivery industry, which Instacart believes could double in size in the future.
I am also bullish on the company’s innovative new offerings and partnerships, like its exciting new offerings with Roku, which have the potential to be extremely lucrative to both companies and to the advertisers looking for a targeted, frictionless ad experience.
