The Carsales.Com Ltd (ASX: CAR) share price has had a disappointing start to the week.
In afternoon trade the auto listings company's shares are down almost 3% to $13.94.
Why is the Carsales share price in the red?
With no news out of the company or the industry, today's decline appears to be attributable to a broker note out of Morgans this morning.
According to the note, its analysts have downgraded the company's shares all the way from an add (buy) rating to a reduce (sell) rating.
The broker has held firm with its price target of $12.49, which implies potential downside of over 10% for its shares over the next 12 months even after factoring in today's decline.
Why has Morgans downgraded Carsales?
The note reveals that Morgans made the move largely on valuation grounds following its strong share price rally since the start of the year.
Prior to today, the Carsales share price had risen over 33% in 2019.
This left its shares changing hands at almost 27x estimated full year earnings, which Morgans felt was a little rich for its current growth profile. Its analysts expect the company to deliver earnings per share growth of approximately 9% in FY 2020.
And while the broker remains positive on the company's long term growth prospects, it appears to believe that investors ought to wait patiently to buy in at a price in the future that affords a more compelling risk/reward
In the meantime, two companies that the broker remains positive on in the near term are Afterpay Touch Group Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P).
This morning the broker retained its add rating on both shares and lifted their price targets to account for lower bond yields and currency movements. It has increased its price target on Afterpay Touch to $28.85 and on Zip Co to $3.52.
