Shares in takeaway marketplace Just Eat (LSE: JE) fell almost 6% in early trading today as the market digested the latest set of interim numbers from the relatively new FTSE 100 constituent. Is this reaction a signal for those already holding it to bank profits while they still can? I’m not so sure.
“Strong order growth”
A quick glance at today’s figures may cause some to scratch their heads. Revenue soared by 46% at constant currency to £358.4m in the six months to the end of June, thanks to a tasty 30% increase in the number of orders made with the company. A total of 24m customers used Just Eat over the first half of 2018, amounting to 104m takeaways.
Broken down by region, revenue in the UK rose by 30%. Collectively, Just Eat’s overseas operations did even better with revenue climbing 35% at constant currency with the trio of Italy, Spain and Mexico all registering “strong order growth“. By far the standout performer, however, was Canada where revenue rocketed 227% thanks to the merger with SkipTheDishes. The only slight negative was in Australia, registering a 2% dip at constant currency as the business transitions to a hybrid delivery model.
Not all the numbers were quite as impressive though.
All told, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose 12% to £82.7m. While not unexpected, this pales in comparison to the 42% achieved in the previous full year as a result of ongoing investment in the business. The company chose to keep its guidance to within the £165m-£185m range, despite raising revenue estimates from £660m-£700m to £740m-£770m.
Will the share price slide continue?
Not necessarily. It’s easy to forget just how far Just Eat has come since arriving on the market back in April 2014. In a little over four years, the share price has moved in excess of 200% higher. Seen in this context, and taking into account the fact that the stock has shown a tendency to recover from similar falls fairly quickly, I suspect today’s price action isn’t worth getting too worried about. Shares go down as well as up and basing an investment decision solely on one set of numbers from an isolated six-month period just isn’t ideal.
Given that earnings were already predicted to slow somewhat in 2018, today’s fall might be explained by investor jitters over management’s decision to increase investment from £50m to somewhere between £55m and £60m. Given that the £5.8bn cap is now seeing increased pressure from firms such as Uber Eats and Deliveroo, however, this 10%-20% increase seems like a small price to pay if Just Eat is to retain its market-leading position. The costs associated with recent acquisitions such as Hungryhouse (which served to reduce pre-tax profit by 3% to £48.1m over H1) should also pale into insignificance in the long term. And that — as regular readers will know — is the only timeframe that should really matter to Foolish investors.
So, as long as investors can stomach the high valuation (45 times forecast earnings, reducing to 35 in 2019 based on analyst estimates of how the company will perform), have faith that CEO Peter Plum’s growth strategy will remain realistic, and can be content to sit tight while the company showers cash on its operations rather than its owners, I don’t see there being any reason to panic just yet.
