Ocado Group PLC (LON:OCDO) is the best long-term hedge against grocery disruption, according to Morgan Stanley, but it has been de-rated recently.
Analysts reckon it’s been mainly driven by perceived near term downside risks to its UK Retail business, which represents around 20% of the online retailer's market capitalisation, with its Solutions business accounting for the remaining 80%.
READ: Ocado ripe for re-rating suggests Morgan Stanley
With the current share price now reflecting near-term headwinds around basket size, order volumes and patent litigation, the debate should shift back to its longer-term potential, according to the US bank.
In fact, the FTSE 100 group has an addressable market of US$725bn across 17 countries, but the share price is pricing “only four (small) new contract wins”.
“Although the stock looks expensive against other software companies with similar business models, this is justified by a much superior growth outlook,” analysts noted.
Shares rose 1% to 1,998.5p on Monday morning, having tumbled 15% in the year to date and 31% since a peak of 2,895p last September.