Shares in takeaway marketplace Just Eat (LSE: JE) climbed over 4% in early trading this morning following the release of another tasty trading update. Despite its initially eye-watering valuation, I still think the company offers one of the best growth stories in the FTSE 100.
Let’s start by diving deeper into the latest figures.
“Strong start”
A total of 51.6m orders were placed with the company in the three months to the end of March — a rise of 32%. Just under 30m of these came in the UK (a 24% jump) which benefited from the acquisition of Hungryhouse back at the start of 2018 and, according to the company, the inclusion of part of the Easter holiday weekend.
Elsewhere, Just Eat’s global presence continues to grow with orders rising 46% to 21.9m, thanks to “strong performances” in Spain and Italy and “triple-digit order growth” Canada, through SkipTheDishes. The only slight disappointment was Australia, where trading was soft.
Thanks to of the above, reported revenues rose 49% (or +51% once foreign exchange fluctuations are taken into account) to £177.4m.
As a result, Just Eat said its previous guidance on performance over 2018 hadn’t changed. It expects revenue to come in somewhere between £660m and £700m, with profits spanning £165m and £185m.
All told, I’m tempted to suggest CEO Peter Plum’s comment that the £5.3bn-cap experienced a “strong start” to 2018 was putting it mildly.
Cheap? Really?
Taking into account today’s share price rise, Just Eat’s stock has now increased just over 41% in value in one year, permitting it entry into the market’s top tier. Those who bought in shortly after the company listed in August 2014 (and resisted the temptation to bank profits) would now be sitting on a 222% gain. The FTSE 100 is up around 15% in comparison, demonstrating how profitable owning disruptive, fast-growing businesses rather than a simple index tracker can sometimes be.
After such a stellar performance, it would be no surprise if some market participants were beginning to suspect that Just Eat’s growth story is now fully priced in and that the aforementioned share price gains are unlikely to be replicated going forward. A forecast price-to-earnings (P/E) ratio of 41 — the very antithesis of value — suggests they may have a point.
But is this really the case? After all, consistently frothy valuations didn’t stop investors from flocking to fast fashion giants ASOS and boohoo.com (my foolish colleague Peter Stephens remains bullish on the former). Meanwhile, tonic supplier Fevertree’s share price also continues to defy gravity, despite changing hands on 66 times expected earnings.
As another indication that its best days may still lie ahead, Just Eat currently boasts a fairly attractive price-to-earnings growth (PEG) ratio of 1.1, based on analyst estimates for the current year. As a rule of thumb, anything at or below this level tends to indicate that investors aren’t overpaying for their shares.
While talk of Just Eat’s stock being a ‘bargain’ may be stretching things, I can well understand even new investors wanting to build a position at this point. So long as management does its best to manage market expectations by remaining conservative in its targets, today’s numbers, combined with its strategy for international expansion, sound acquisitions and market dominance, leads me to suspect that the share price will continue to ascend going forward, albeit with the occasional wobble as some take profits.
