The Redbubble Ltd (ASX: RBL) share price is taking off today after a leading brokerage began covering the stock.
Morgan Stanley has initiated coverage of Redbubble today, placing a generous target on the company's share price.
At the time of writing, the Redbubble share price is $4.46, 6.95% higher than its previous close.
But that's still a long way off what Morgan Stanley believes is a good price for the online marketplace's shares.
The brokerage has placed a $6.50 price target and an overweight rating on Redbubble's stock.
That suggests Morgan Stanley believes Redbubble's stock has another 45% to gain to meet its value.
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What Morgan Stanley's sees in Redbubble
According to Reuters, Morgan Stanley noted its overweight rating of the Redbubble share price is partially due to the company's large addressable market.
The brokerage believes such a market could see Redbubble with strong long-term growth.
It also recognised that Redbubble's customer base is under-monetised and its business model highly profitable.
Further, Morgan Stanley stated the company's business model is free cash flow generative, which supports its access to capital.
Let's take a closer look at Redbubble's metrics.
Is the Redbubble share price undervalued?
Redbubble is the operator of an online marketplace where artists can connect with customers. The company is, therefore, part of the ASX technology sector.
The company had a successful financial year 2021. It reported that its revenue had increased 58% on that of the prior financial year to $553 million.
Even more impressive, Redbubble's earnings before interest, tax, depreciation, and amortisation (EBIDTA) came to $53 million – 930% more than that of financial year 2020.
At its current price, Redbubble has a market capitalisation of around $1.24 million.
Its earnings per share (EPS) comes to 11.3 cents, giving Redbubble a price-to-earnings (P/E) ratio of around 39.
However, despite Morgan Stanley's bullishness, the Redbubble share price is having a tough year on the ASX.
It is currently 24% lower than it was at the start of 2021. Although, it is 6% higher than it was this time last year.
