Grocery Outlet Is 'Priced For Perfection' Analyst Says: Here's Why

Although Grocery Outlet Holding Corp. (NASDAQ: GO) is a “long-tailed growth story” and trends are inflecting, the stock currently seems overvalued, according to Morgan Stanley.

The Grocery Outlet Holding Analyst: Simeon Gutman downgraded the rating for the Emeryville, California-based company from Equal-Weight to Underweight.

He also raised the price target from $29 to $33.

The Grocery Outlet Holding Thesis: The stock has outperformed year to date, gaining 48%, versus a 13% decline in S&P 500, Gutman said.

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"Our downgrade is not a structural view on GO's fundamentals (we are constructive on its value proposition and differentiated offering in Grocery), its longer-term growth runway (we model ~1.5k stores over time vs. 425 today), or a commentary on near-term fundamentals (which are healthy in an absolute sense)," he noted. "Rather, the stock has gotten ahead of its fundamentals and seems priced for perfection, which drives a negative risk/reward skew."

The price target had been raised to reflect the second-quarter results and the current share price represents a downside of around 20% to the revised price target, Gutman added.

GO Price Action: Shares of the company declined by 6.28% to $39.12 at the time of publication Tuesday.

Image: Courtesy of GroceryOutlet.com