Investing.com -- Morgan Stanley has downgraded Zalando SE (ETR: ZALG ) to “underweight” from “equal-weight,” citing rising macroeconomic pressures and intensifying competition that weaken the company’s risk-reward profile.

The price target remains at €28.50, representing a 19% downside from the stock’s closing price of €33.73 on April 29.

Despite modest gains following recent U.S. tariff announcements, analysts argue the online fashion platform faces increased headwinds. Competitive threats from lower-priced, Asia-based fashion retailers and ongoing consumer weakness challenge Zalando’s ability to sustain growth.

The company’s current valuation, trading at a forward P/E of roughly 31x for 2025 and 24x for 2026, is seen as unappealing relative to peers.

Morgan Stanley remains cautious even as Zalando pursues strategic expansion, including its pending €1.2 billion acquisition of About You.

The brokerage believes Zalando is paying a premium, with About You trading at significantly higher EBITDA multiples despite lower margins and weaker cash generation.

Combined, the companies are valued between €18 and €40 per share on a pro forma basis, with €29 as the midpoint.

A key asset in the deal is SCAYLE, About You’s B2B e-commerce software platform. Though small, SCAYLE is profitable and expected to grow quickly if it can scale in the U.S. market.

Morgan Stanley values SCAYLE between €0.3 billion and €1.2 billion but highlights high execution risk, particularly in North America where incumbent platforms dominate.

Zalando’s own growth trajectory appears muted. The bank projects mid-single-digit annual revenue growth through 2027, with adjusted EBIT margins recovering from 3.4% in 2023 to 5.6% by 2026.

However, Morgan Stanley sits at the lower end of the company’s 5–10% medium-term guidance range and sees risk in maintaining share within the online apparel segment.

While synergies from the About You integration and SCAYLE’s potential offer long-term value, the near-term picture remains clouded by weak consumer demand and growing competition.