Bulletin
Investor Alert

Barron's Archives | Email alerts

Jan. 8, 2018, 3:57 a.m. EST

These food-delivery stocks have served up tasty gains — here’s how to play them

Bargain-seeking investor may want to pass on Just Eat and Delivery Hero shares

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    FTSE 100 Index (UKX)
  • X
    STOXX Europe 600 Index (SXXP)

or Cancel Already have a watchlist? Log In

By Victor Reklaitis, MarketWatch


Getty Images
An app for Just Eat, a food-delivery company can be seen on a smart phone in London.

Just Eat and Delivery Hero have served tasty fare to both customers and investors, with stock gains of more than 20% over the past six months.

The two online-food-ordering stocks also received institutional approval recently: a spot in the U.K.’s FTSE 100 benchmark /zigman2/quotes/210598409/delayed UK:UKX -0.84%  for Just Eat  and inclusion in the Stoxx Europe 600 /zigman2/quotes/210599654/delayed XX:SXXP -0.41%  for Delivery Hero /zigman2/quotes/202519651/delayed DE:DHER +1.81%  . Buying the two stocks at current levels, however, might be more akin to dining at an overpriced restaurant than finding a deal on a value menu.

Just Eat trades at 48 times estimated forward-year earnings, while there is no comparable price/earnings ratio for Delivery Hero, as it isn’t expected to turn profitable until 2019, according to FactSet data. When it comes to another metric—price to estimated forward-year sales—the two fast-growing companies are both around 8. That’s above GrubHub’s /zigman2/quotes/210404212/composite GRUB +1.27%   multiple of about 7, but below the 10 sported by European peer Takeaway.com /zigman2/quotes/201653805/delayed NL:TKWY 0.00% .

More from Barron’s: This iPhone X supplier’s stock has a charge left even after tripling this year

And see: What could keep Ryanair from soaring higher — its ambitions

Just Eat’s shares are “fairly valued, particularly after the strong performance and risks related to own-delivery investments,” say RBC analysts in a recent note. They’re referring to the possibility the company will start a big push to deliver meals itself, rather than simply matching customers with restaurants that deliver and then charging a commission. Pressure from U.K. competitors Uber Eats and Deliveroo may help bring about such an effort.

But that type of do-it-yourself move didn’t treat GrubHub investors so well in 2015, point out RBC’s Sherri Malek, Richard Chamberlain, and Wassachon Udomsilpa. “The margins went down significantly, and it caused the stock to de-rate significantly for a year,” Udomsilpa tells Barron’s, though she adds that GrubHub’s shares eventually recovered.

The RBC team has a Sector Perform rating on Just Eat and a 12-month price target of 840 pence ($11.40), implying a slight rise from Friday’s close of 811 pence. Morgan Stanley analysts led by Andrea Ferraz are even more tentative, putting a price target of 760 pence on the shares, along with an Equal Weight rating. They say they’re waiting for new CEO Peter Plumb to expound on his strategy. Just Eat gets roughly two-thirds of its revenue from the U.K., with France and Australia providing about 9% apiece.

Check out: These defensive stocks make the cut as one of Morgan Stanley’s key picks for 2018

Also read: What stock-market sector looks good in 2018? Think planes, trains and automobiles

When it comes to Delivery Hero, RBC’s analysts warn about a “potentially more costly battle for market share.” In Germany, which provides about 20% of revenue, the company is seen as the leader, but it’s battling with Takeaway.com. The industry’s markets tend to end in a winner-take-all scenario, and the outcome in Europe’s biggest economy is uncertain, RBC says. Delivery Hero gets about 39% of its revenue from Europe, 25% from the Middle East and North Africa, and 27% from Asia. The RBC team has a Sector Perform rating on Delivery Hero and a price target of 38 euros ($46). That’s around where shares were a month ago before slumping on news of a new-share issuance. The stock made its debut in June and closed on Friday at €31.98.

UBS analysts also worry about competition and Delivery Hero’s moves to exit markets where it isn’t leading. A UBS team led by Chris Grundberg has a Neutral rating and a price target of €39 on the stock.

The consensus on the two stocks is largely bullish, and RBC’s analysts praise the underlying businesses. Even so, a bargain-seeking investor may want to pass. The companies could need to digest their recent gains.

This article first appeared at Barrons.com on Jan. 6, 2018.

/zigman2/quotes/210598409/delayed
UK : FTSE UK
7,262.49
-61.31 -0.84%
Volume: 618,026
Nov. 20, 2019 4:56p
loading...
/zigman2/quotes/210599654/delayed
XX : STOXX
403.82
-1.68 -0.41%
Volume: 0.00
Nov. 20, 2019 5:50p
loading...
/zigman2/quotes/202519651/delayed
DE : Germany: Frankfurt
45.10
+0.80 +1.81%
Volume: 2.00
Nov. 20, 2019 8:59p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
N/A
Rev. per Employee
N/A
loading...
/zigman2/quotes/210404212/composite
US : U.S.: NYSE
$ 40.57
+0.51 +1.27%
Volume: 3.26M
Nov. 20, 2019 6:30p
P/E Ratio
972.90
Dividend Yield
N/A
Market Cap
$3.66 billion
Rev. per Employee
$370,043
loading...
/zigman2/quotes/201653805/delayed
NL : Netherlands: Euronext Amsterdam
83.25
0.00 0.00%
Volume: 392,082
Nov. 21, 2019 3:01a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
€5.09 billion
Rev. per Employee
€86,944
loading...

Victor Reklaitis is a London-based markets writer for MarketWatch. Follow him on Twitter @VicRek.

This Story has 0 Comments
Be the first to comment
More News In
Markets

Story Conversation

Commenting FAQs »

Partner Center

World News from MarketWatch

Link to MarketWatch's Slice.