To paraphrase Mark Twain, reports of the death of GrubHub (NASDAQ:GRUB) stock are premature.
The restaurant delivery service reported disappointing quarterly results earlier this year and gave lackluster guidance as it ratcheted up marketing spending to launch the service in new cities. Still, GRUB isn’t in any danger of going out of business at the hands of Uber Eats or anyone else though some bears may think otherwise.
Though GRUB stock posted a small net loss of $5.2 million in the most recent quarter, GrubHub had positive net income in the preceding three quarters and earned $75.5 million in profit in 2018. Revenue rose 40% to $287.7 million in the last quarter and jumped 47% to $1 billion last year.
Wall Street analysts are expecting GRUB to report earnings per share of 25 cents in the current quarter on revenue of $323 million in the current quarter, a 39% year-over-year increase. GRUB is scheduled to report earnings after the bell.
Still A Market Leader
Obviously, not everything is hunky-dory at GrubHub. The company is losing market share and faces two-well funded rivals in Uber, a “unicorn” planning a massive Initial Public Offering, and DoorDash, which is backed by Japan’s SoftBank.
GrubHub’s share of the U.S. food delivery sales was 43% as of January, which isn’t too shabby compared with DoorDash’s 31% and Uber Eat’s 26%, according to market researcher Second Measure. Growth in GrubHub and Uber Eats has slowed while smaller rival DoorDash has accelerated.
The restaurant delivery market share data also fails to account for the surging demand for restaurant delivery services, which should create enough of a rising tide to lift all of the boats in the market. Moreover, there is still plenty of room for growth. A 2018 Gallup poll found that 84% of U.S. adults order food for takeout or delivery more than once per month, well above the 15% order online groceries or the 10 percent who buy meal kits online.
Wall Street doesn’t like it when companies invest in their business even when they are in highly competitive, fast-growing markets like GrubHub and would be derelict if they used the money on shareholder-friendly moves like stock buybacks. GrubHub has grown through acquisitions and may have to buy DoorDash or one of the ever-increasing number of rivals angling to get a piece of the restaurant delivery market.
The company also doesn’t seem to be getting any credit for the things it is doing right.
“…GrubHub still attracts high-frequency customers better than any other service,” according to Second Measure. “In the first 10 weeks of this year, 17% of GrubHub’s customers ordered food at least once a week, on average. And over 2% of its customers placed orders an average of three times per week or more. At Uber Eats, that number was only 1%.”
Grubhub Too Cheap To Ignore?
Shares of GRUB stock have slumped about 99% since the start of the year and are a compelling value. They are trading at a nearly 60% discount to the average 52-week price target of Wall Street analysts of $103.95.
While GRUB stock isn’t cheap, trading at a trailing price-to-earnings multiple of 81, its multiple is still well below its 5-year high of 123.93, according to Reuters. This stock isn’t for the faint of heart but is worth adding to portfolios of investors with a high-risk tolerance.
Jonathan Berr doesn’t own shares of any of the stocks discussed in this post.