Is GrubHub Inc. (NYSE: GRUB) oversold? Well, that is the chatter making waves, the stock has taken a significant hit over the last one month. The stock is down by more than 40% after a meteoric rise that saw it register a 52-week high of $149 in October. The sell-off has come on growing concerns on whether quick-service chains will switch to third-party delivery chains. Wedbush analyst, Ygal Arounian, believes GrubHub remains well positioned to ink deals for its delivery services with the chains. Early this year the online and mobile take-out Food Company inked a strategic partnership with Yum! Brands. In addition to the strategic deal, the company has consequently completed the acquisition of Tapingo as it continues to strengthen its food ordering and delivery business. The announcement of a 52% increase in revenues in Q3 all but attests to a company that is firing on all cylinders. Taking into consideration the deals the company has signed as well as the underlying robust revenue growth, the Wedbush analyst believes the stock is undervalued at current trading levels.
GrubHub Price Analysis
GrubHub has resorted to trading in a downtrend in recent weeks. However, it appears to be closing in on a critical support level near the $75 a share level. Given the underlying solid fundamentals, the stock could bounce back and continue powering high in continuation of the long-term uptrend. The stock needs to rise and stabilize above the $80 a share level to reaffirm the long-term uptrend. However, a breach of the $70 a share level could open the door for short sellers to continue pushing the stock lower. In our view, the stock is due for a significant bounce back.
GrubHub is fresh from reporting 52% increase in revenues that came in at $247 million in Q3. Gross food sales in the quarter were up 40% to $1. 2 billion from $867 million a year ago. Net income in the quarter surged to $22.7 million or $0.24 a share representing 75% year over year increase.
In the quarter, the company added more organic new dinners than in any other quarter, further affirming its growth prospects. Strategic marketing, as well as intelligent dinner platform, helped the company attract more high-quality dinners. “With solid traction in new diner acquisition over multiple quarters and increased coverage across the country from our delivery expansion, we are in prime position to invest incrementally in advertising and accelerate online ordering adoption,” said Matt Maloney, Grub hub’s founder and chief executive officer.
In a bid to accelerate underlying dinner growth, GrubHub has completed the acquisition of Tapingo. The company paid $150 million for the leading platform for campus food ordering, as it seeks to target more customers in colleges and universities across the country. Tapingo is an excellent addition as it currently powers tens of thousands of pick up transactions per day and serves more than half a million active dinners. GrubHub expects the acquisition to contribute revenue of about $3 million in the fourth quarter.
GrubHub has made impressive strides in accelerating dinner growth through strategic partnerships as well as acquisition. The company has broadened its delivery coverage, the key to accelerating revenue growth going forward. The company has also indicated it is ready to spend $20-30 million in Q4 in marketing and delivery expansion.
Increased spending is part of an effort of accelerating dinner growth expected to enable the company to capture more takeout orders. In the fourth quarter, the company expects revenue of between $283 million and $293 million.
Buoyed by the effort the company is putting in strengthening its competitive edge in the sector, the Wedbush analyst remains optimistic of the stock rallying to the $150 a share level. That said GrubHub is an exciting pick, especially after the recent pullback. The stock remains well positioned to power high given the solid underlying fundamentals and growth potential.