It's been an exciting start to 2020 for GrubHub (GRUB) investors, with a 12% return in the first five trading days, and a much-needed reprieve from 2019's dismal performance. While the reports of a potential sale have pushed the stock higher, for the time being, the fundamentals for GrubHub continue to remain under pressure. Lukewarm projections for industry growth and deceleration in DAGs [Daily Average Grubs] prompted analysts to slash earnings estimates by nearly 90% for FY-2020, down to $0.22 in annual EPS from $1.90 previously. This put a severe dent in the value-play thesis, with the stock now trading at a forward earnings multiple of over 250. Based on this, I continue to see the stock as an Avoid and would view the $60.00 level as an opportunity to lighten up exposure for investors.
(Source: MoneyInc.com)
GrubHub reported its quarterly results in October, and there wasn't a lot to like about the report. While GrubHub added 900,000 new active diners in the quarter, the company also revealed in its shareholder letter that newer customers are coming at a lower quality, with DAGs well below its expectations. Management believes that newer customers are more promiscuous with peers in the food-delivery space, and this was shown by only 10% DAG growth year over year. This represents a 600-basis point sequential decline from the 16% DAG growth in Q2, and an even further deceleration from the 19% year-over-year growth in Q1.
(Source: NRN.com)
Also, GrubHub has concluded that the supply innovations in the takeout industry have played out, and the company expects the annual growth to slow long term to a low double-digit growth rate. This is not ideal given that there's increased competition from names like Uber (UBER). Still, GrubHub's goal is to leverage what it believes is a significant
