Without a doubt, Instacart (NASDAQ:CART) is facing challenging competition. Unfortunately, it does not have any major advantages over its many rivals in the grocery-delivery sector.
Actually, it’s much less well-known than several of its competitors, including Wal-Mart (NYSE:WMT), Kroger (NYSE:KR), Uber’s (NYSE:UBER), Uber Eats, and Amazon (NASDAQ:AMZN). Moreover, although CART is a leader of the space, it has not obtained a commanding share of the sector. Signs indicate its growth is slowing.
Notably, the total addressable market of the online grocery shopping sector may be more limited than many believe. Certain evidence indicates the sector’s revenue may have started contracting. Finally, dozens of better names other than CART would merit a buy for both conservative and growth investors.
Tough Competition and No Major Advantages
Wal-Mart, Kroger, and Amazon’s Whole Foods all deliver groceries to consumers’ homes. Further, Amazon delivers many non-perishable food items to the members of its Prime service at no additional charge. And, it’s possible to order home delivery of groceries from many different stores via Uber Eats.
According to one estimate, CART’s share of the grocery-delivery market is about 20%. While that figure is certainly significant, it’s not commanding. Unfortunately, no evidence exists that the company has a major first-mover advantage in the sector. Indeed, many of its competitors have been offering grocery-delivery services for many years and are much better known than Instacart.
True, Instacart may enable consumers to order from some small grocery stores not covered by Uber Eats. Yet, that advantage is unlikely to help Instacart a great deal, since those stores’ combined market is probably rather small.
Meanwhile, signs show tough competition may already be causing Instacart’s growth to decelerate meaningfully. For example, in the 12 months that ended in June 2023, the number of orders on its platform rose just 6.5%. That number is way down from the 20% increase that it experienced during the 12 months that ended in June 2022. Additionally, according to Seeking Alpha columnist Timur Mirzaev, its implied market share fell to 20.1% in the 12 months that ended last June, from 22% during the previous 12-month period.
And as Mirzaev points out, over the long term, the tough competition is likely to weigh on the company’s margins and profits.
The Limited Appeal of the Grocery Delivery Market
For a relatively simple reason, the ceiling of the grocery delivery market’s total addressable market may be rather low. Specifically, many people prefer to actually inspect some food items, such as produce, meat, and bread, before purchasing.
Indeed, some evidence suggests that the U.S. online delivery market has even begun contracting. The sector’s revenue fell 3.1% last month versus the same period a year earlier, with orders reaching their lowest level since the pre-pandemic era.
Valuation and the Bottom Line on CART Stock
CART stock has a forward P/E ratio of 17.4. That’s not a low valuation, given the company’s significant challenges.
For conservative, value-oriented investors, many better choices than CART deserve attention. Those include Bank of America (NYSE:BAC), Best Buy (NYSE:BBY), and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
And those looking for stocks with tremendous growth potential would be better off with Intel (NASDAQ:INTC), Super Micro (NASDAQ:SMCI), Plug Power (NASDAQ:PLUG), and First Solar (NASDAQ:FSLR), all of which have extremely powerful, positive catalysts and strong competitive advantages.
On the date of publication, Larry Ramer’s wife held a long position in BAC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.