The novel coronavirus has transformed consumer behavior, thereby altering business models for various sectors. In particular, the restaurant and food service industry has been deeply impacted by the lockdown restrictions and social-distancing measures. Naturally, with fewer people going out, restaurants are engaging with customers online and focusing on takeout and delivery. Not all food-based companies are created equal in this new normal. After all, having an in-house delivery setup is either too expensive or too big of a hassle for most restaurants. Therefore, there has been a surge in demand for food delivery services, which has put many food delivery stocks in the spotlight.
Moreover, the U.S. Food and Drug Administration (FDA) states that there is no evidence that the virus is transmitted from food or food packaging. Hence, food delivery apps are witnessing a massive increase in activity, pushing food delivery stocks to record highs.
Many would argue that the online food delivery trend was already rising even before Covid-19. The sector was benefiting from widespread digitalization, increased urban living and evolving consumption patterns. However, the pandemic has taken things up a few notches for food delivery companies. This has made many of them highly attractive investments.
With that in mind, here are three of the best food delivery stocks to invest in today:
Food Delivery Stocks to Buy: DoorDash (DASH)
DoorDash provides food delivery logistics services by connecting customers and merchants through its online platform in the U.S. The pandemic has accelerated growth for the company, leading to its hugely successful IPO this month. The company sold 33 million of its shares, raising nearly $3.4 billion with a whopping $39 billion valuation. DASH stock is now trading over $180 — a massive jump from its initial price of $102.
Its earnings results have been stellar so far this year, helped enormously by the tailwinds created by the pandemic. The company reported 236 million orders in the third quarter this year compared to 70 million in 2019. Revenues in the first nine months of 2020 were at an impressive $1.9 billion in comparison to the $587 million it made last year. More importantly, net losses are down to $149 million so far this year, from net losses of $533 million during the same time in 2019. Additionally, it reported a positive cash flow from operations this year. This was a first for the company. All of these factors add up to make DASH stock a standout among other food delivery stocks this year.
Ride-hailing pioneer Uber has had it tough during the pandemic for several reasons. Its ride-sharing business took a massive hit with lockdown restrictions in place and the mass hysteria surrounding the pandemic. However, its delivery business, particularly its Uber Eats division, has done exceedingly well this year. Hence, it is now one of the significant growth catalysts for UBER stock stealing the spotlight from its ubiquitous ride-share business.
In the third quarter, gross booking for Uber’s delivery business were at $8.55 billion, growing by a massive 134%. Revenues and EBITA from the segment grew by 125% and 42%, respectively. Additionally, its active restaurant partner base has grown by roughly 70%. One of the key benefits of the division is its higher margins in comparison to the Rides business. Moreover, it also faces fewer legal troubles, which significantly reduces its operational expenses.
Do keep in mind that the food delivery business is highly competitive. However, with Uber’s firepower, it can make significant inroads in various markets.
Domino’s Pizza (DPZ)
Domino’s is one of the world’s largest pizza chains, with over 17,000 stores in the world. Like with most restaurants, the early days of the Covid-19 crisis were tough on DPZ stock. However, it has bounced back significantly thanks to its digital ordering and delivery services. Despite the challenges presented by the pandemic, DPZ stock is up a healthy 31% year to date.
The company recently posted its strong third-quarter results, where revenue rose almost 18% year over year. Although margins are relatively weak, it has done well to increase volumes substantially. Earnings per share of $2.49 were down due to Covid-19 related expenses, missing estimates by at least 30 cents.
As mentioned earlier, Domino’s has sustained its revenue growth through its strong delivery services and digital presence. Delivery growth has helped offset losses in takeout and dining. As we advance, the management is aiming to increase its digital sales by 75% in 2021. Therefore, despite store closures and pandemic-related restrictions, DPZ stock has successfully weathered the storm with its top-notch e-commerce and delivery competencies.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. He does not directly own the securities mentioned above.