Need to Digest Gains on 2 Food-Order Stocks
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 for Just Eat (ticker: JE.UK) and inclusion in the Stoxx Europe 600 for Delivery Hero (DHER.Germany). 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 (GRUB) multiple of about 7, but below the 10 sported by European peer Takeaway.com (TKWY.Netherlands).
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.