Waitr (NASDAQ:WTRH) is best known on Wall Street as that online food delivery company which — unlike its peers — failed to succeed in a booming space. Waitr stock cratered for what seemed like a good reason.

While the likes of GrubHub (NYSE:GRUB), Postmates and DoorDash command multi-billion dollar valuations, Waitr features a measly $250 million market cap, and the stock price has done nothing but fall, fall and fall some more since the company hit public markets in late 2018.

But, for the first time in Waitr’s life as a public company, the Waitr stock price is soaring.

Coming into the year, this was a 30 cent stock. Today, shares trade hands just shy of $3 — representing a whopping 10X increase in value in just six months.

Why?

Covid 19 and M&A potential.

And those two same reasons mean that this rally in WTRH stock is far from done. Waitr stock is, for the first time ever, a buy.

Here’s why.

A Closer Look at Waitr Stock

If you’re aware of the online food delivery space, then you’ve probably heard of the likes of Uber Eats, DoorDash, Postmates, Caviar and GrubHub.

But you may not have heard of Waitr.

The $250 million online food delivery company does exactly what Uber Eats and DoorDash do: provide online food ordering and delivery services. But the company does it at a much smaller scale. In May 2020, the platform owned just 1% of online food delivery sales in the U.S. – versus 45% share for DoorDash, 23% share for GrubHub and 22% share for Uber Eats.

This smallness is by design. Waitr is hyper-focused on serving under-penetrated, smaller-town markets across the Southeast and Midwest, like Baton Rouge, Columbus, Ga. and Gainesville, Fla.

Because those are smaller markets, they are less attractive to the likes of DoorDash and Uber Eats, and therefore, attract less investment and resource focus from those bigger players.

The result? An open market opportunity for Waitr to grow into the runaway leader in those smaller markets – an opportunity which the company has successfully capitalized on.

In Baton Rouge, Columbus, and Gainesville, Waitr is more than twice as big as its closest competitor (as of mid-2019).

Significant M&A Potential

Given the platform’s unprecedented access to small town America, Waitr is an attractive takeover target as the online food delivery space rapidly consolidates in 2020.

Over the past month alone, European food delivery giant Just Eat Takeaway bought GrubHub for $7.3 billion, while Uber (NYSE:UBER) offered to acquire Postmates. Meanwhile, in mid-2019, Square (NYSE:SQ) sold its food delivery unit, Caviar, to DoorDash for $410 million.

In other words, we are seeing the beginning of mass consolidation across the online food delivery space.

Why is this happening?

Because it needs to happen.

The online delivery market is huge. But because platform loyalty is so low – consumers freely jump from app to app based mostly on who has the lowest price that day – the market cannot profitably support multiple smaller players.

Instead, consolidation is the only way the bigger companies in this space can ease competitive pressures, reduce promotional pricing and net a profit.

So… the bigger fish – like Just Eat Takeaway, Uber Eats and DoorDash – are buying the smaller fish.

This buying spree won’t stop until all the smaller fish are taken out.

Waitr is one of those smaller fish. With a unique value prop. Ultimately making it an attractive M&A target in 2020 for an Uber or a DoorDash who wants to dominate small town America.

Covid-19 Momentum

One of the reasons that Waitr stock has been in a secular decline despite M&A potential is that a lack of profitability coupled with a debt-burdened balance sheet has made bankruptcy a more likely outcome than an acquisition.

Until now.

Until Covid-19.

The company recently reported that, thanks to restaurant closures and stay-at-home orders, April order volume rose ~20% versus the first quarter. A quick look at Google Trends over the past 90 days shows that Waitr search interest has stabilized around April levels, implying that the company has maintained its strong April momentum into May and June. It also helps that the Five Guys and Waitr linked up for a huge partnership in May.

All of this positive momentum has guided Waitr into profitable territory for the first time ever. Plus, the company is using cost-savings and increased scale to pay down debt.

In other words, Waitr is in as good of a fundamental position as the company has been in several years… with rising sales and improving profitability… at a time when the online food delivery space is rapidly consolidating.

It doesn’t take a rocket scientist to connect those dots.

It isn’t just likely that Waitr gets acquired by a DoorDash or an Uber in 2020, but it’s also likely that Waitr will have leverage in those M&A discussions and that, if taken out, such an acquisition will happen at a sizable premium.

How much Upside in Waitr Stock?

How big will that premium be?

GrubHub was acquired for 5.6X 2019 sales. Given its recent operational improvements, Waitr could easily command that multiple in a takeover.

The company’s 2019 sales were $192 million. That combination implies a potential acquisition price tag of over $1 billion.

Waitr’s market cap is just $250 million today.

In other words, thanks to M&A potential, Waitr stock offers investors visible upside to 4X returns over the next few months.

Bottom Line on Waitr Stock

Waitr stock has long been one of the worst stocks to buy on Wall Street.

That’s no longer true today.

The world has changed in 2020, and those changes — namely, the acceleration of online food ordering thanks to Covid-19, and aggressive consolidation in that space — imply that Waitr stock offers significant upside potential over the next six months.