GrubHub Stock: Social-Distancing Focus Could Power Food Delivery Stock

GrubHub Stock: Social-Distancing Focus Could Power Food Delivery StockGrubHub Stock the Ideal Coronavirus Play?

Many restaurants across the country are either closed or empty due to the spreading coronavirus threat. But we all have to eat. And for those who can’t cook or need a break, there’s food delivery. And that’s where GrubHub Inc (NYSE:GRUB) could really benefit from the coronavirus lockdown.

GRUB stock has taking a beating, recently at a new 52-week low of $31.50 and down about 50% over the past year.

GrubHub stock is below its initial public offering (IPO) price of $40.00 in April 2014 and its high of $149.35 in September 2018.

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Now may be the time to look at GrubHub stock, given what will be an increased demand for home food delivery as the pandemic and isolation measures continue.

Why a Bull Case Just Surfaced for GRUB Stock

The overriding concern with GrubHub stock is the intense competition and low margins. There are Uber Eats and DoorDash, among others.

It won’t be easy, but GrubHub Inc has established a strong infrastructure for food delivery. Probably one of the best in the segment.

GrubHub will need to increase spending on advertising and getting more restaurants and users on board. This will impact margins and profits, but GRUB is looking at the long game.

Revenues have seen impressive double-digit growth in each of the last five years. GrubHub Inc now generates over $1.0 billion in annual revenues.

Fiscal Year Revenue (Millions) Growth
2015 $361.8
2016 $493.3 36.4%
2017 $683.1 38.5%
2018 $1,000 47.5%
2019 $1,330 30.3%

(Source: “GrubHub Inc.,” MarketWatch, last accessed March 19, 2020.)

The concern is that the revenue growth rate declined in 2019, and the rate is expected to further moderate as competition rises.

The consensus estimate calls for GrubHub to report revenue growth of 10.6% to $1.5 billion in 2020 and 14.7% to $1.7 billion in 2021. These are decent metrics if they pan out. (Source: “GrubHub Inc. (GRUB),Yahoo! Finance, last accessed March 19, 2020.)

GrubHub was also profitable from 2015 to 2018, prior to a generally accepted accounting principles (GAAP) loss in 2019.

Fiscal Year Earnings Per Share Growth
2015 $0.44
2016 $0.58 31.8%
2017 $1.12 93.1%
2018 $0.85 -24.1%
2019 -$0.20 -124%

(Source: MarketWatch, op. cit.)

The company earned an adjusted $0.79 per diluted share in 2019. But, given the margin pressures, GrubHub Inc is estimated to see its adjusted consensus earnings fall to a mere $0.04 per diluted share in 2020. There is a wide range of estimates from as low as a loss of $0.32 to as high as a profit of $0.60 per diluted share in 2020. (Source: Yahoo! Finance, op. cit.)

We see similar uncertainty in 2021. GrubHub is expected to earn an adjusted $0.44 per diluted share, but the range is from a loss of $0.21 to profits of $1.43 per diluted share.

GrubHub is also delivering positive free cash flow, which will help as the company spends to protect market share.

Fiscal Year Free Cash Flow (Millions) Growth
2015 $33.5
2016 $60.8 81.6%
2017 $112.4 85.0%
2018 $151.3 34.6%
2019 $78.9 -47.8%

(Source: MarketWatch, op. cit.)

Analyst Take 

Coronavirus is nasty, but it may prove to be a savior for GrubHub Inc. While GRUB has plenty of hurdles ahead of it, the company is clearly continuing to ramp up revenues and deliver profits and free cash flow.

We will likely not see the same kind of revenue growth as in the past, but GrubHub could work on refining its food delivery infrastructure and play the long game. GrubHub stock will likely remain a top contender in the segment.