GrubHub Stock: Still Top of the Food Chain, Despite Price Weakness

GrubHub Stock: Still Top of the Food Chain, Despite Price Weakness
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Hungry for Stock Gains? Consider GrubHub Your Main Course

The nervousness among investors was in play on February 7, when food delivery service GrubHub Inc (NYSE:GRUB) plummeted 21% to a 52-week low of $66.62.

Now, if you were brave enough to view the sell-off in GRUB stock as an aggressive trading opportunity, you likely enjoyed the impressive rebound back to above the price prior to the sell-off.

These kinds of technical trading opportunities do occasionally surface, but generally not to the same extent displayed by GrubHub stock.

And while GRUB stock is still hanging on to a double from the initial public offering price of $40.00 in April 2014, the stock is down miserably from its record high of $149.35 in September 2018.

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Nevertheless, the chart below shows the high potential for more gains if GrubHub Inc can convince the stock market that its stock is still on the right path.

Chart courtesy of StockCharts.com

The next major resistance for GRUB stock is $95.00, followed by $110.00 and $120.00.

Why a Sell-Off in GRUB Stock May Be an Aberration

The recent intraday sell-off in GRUB stock was triggered by a revenue and earnings shortfall in its fourth quarter. But the fact is that revenue still grew at an impressive 40.3% year-over-year to $87.7 million.

The major concern was the big lag in adjusted earnings of $0.18 per diluted share, well below the consensus $0.28 per diluted share.

The good news is that the reason that the earnings fell short was the company’s heavy spending on marketing and advertisements, as GrubHub fights off emerging rivals such as Uber Eats, Door Dash, and Amazon.com, Inc. (NASDAQ:AMZN).

GrubHub will continue to face tough competition, so it will have to protect its leading market share that was due to its early entrance into the food delivery space. The company will need to continue spending on expanding its market in a space that has minimal barriers to entry.

Revenue-wise, GrubHub has ramped up its numbers in four straight years.

Fiscal Year Revenue (Millions) Growth
2014 $253.9 85.1%
2015 $361.8 42.4%
2016 $493.3 36.4%
2017 $683.1 38.5%
2018 $1,000 47%

(Source: “GrubHub Inc.,” MarketWatch, last accessed February 8, 2019.)

The company’s revenue is expected to grow by 35% to $1.4 billion in 2019. (Source: “GrubHub Inc. (GRUB),Yahoo! Finance, last accessed February 8, 2019.)

GrubHub has also been generating strong earnings growth.

Fiscal Year Earnings Per Share Growth
2013 $0.07
2014 $0.30 316.7%
2015 $0.44 46.7%
2016 $0.58 31.8%
2017 $1.12 93.1%

(Source: MarketWatch, op cit.)

On an adjusted basis, GrubHub Inc earned $1.66 per diluted share in 2018, up 44% from $1.20 per diluted share in 2017. For 2019, the company is expected to report an adjusted $1.92 per diluted share. (Source: Yahoo! Finance, op cit.)

On a free cash flow (FCF) basis, GRUB has been delivering strong positive numbers.

Fiscal Year FCF (Millions) Growth
2013 $36.4
2014 $65.8 80.9%
2015 $33.5 -49.2%
2016 $60.8 81.6%
2017 $112.4 85%

(Source: MarketWatch, op cit.)

Analyst Take

If you missed GrubHub stock’s intraday bounce on February 6, you could get another chance to accumulate shares on weakness.

GRUB stock is not cheap, trading at 41-times its consensus 2019 earnings per share, but for the longer-term investor, GrubHub Inc is still the best of breed in food delivery and deserves a look.