The Motley Fool

This FTSE 100 share had an exceptional 2020. Here’s why I’m not buying now

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young woman preparing takeaway healthy food inside restaurant during Coronavirus outbreak time
Image source: Getty Images

Shares in FTSE 100 stock Just Eat Takeaway (LSE: JET) were on the front foot this morning as the company revealed its latest set of full-year numbers to the market. Will this be enough to arrest the slide in the share price? I’m not so sure.

An “exceptional” year

Now, don’t get me wrong — today’s results were certainly striking. Revenue jumped 54% to €2.4bn in 2020. In addition to this, JET also reported adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) of €256 million in the previous year. This represents a jump of 18% on 2019’s €217 million. Taken collectively, these numbers go some way to showing just how quickly the company (and sector) is growing.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

As good as these results are, I don’t think we should be all that surprised. As CEO Jitse Groen reflected this morning, last year was “exceptional” for Just Eat Takeaway. With everyone confined to their homes due to lockdown restrictions, it was inevitable that relatively cheap treats like takeaways would prove popular. Accordingly, JET processed 588m orders in 2020 — up a colossal 42% from 2019. 

What’s perhaps more surprising is that this performance hasn’t really been reflected in the share price. Since hitting a peak in October last year, shares in Just Eat Takeaway have been on the slide.

So, will today mark the start of a sustained recovery?

Reasons to be bullish

Based on more recent trading, it’s certainly possible. Today, the FTSE 100 company said it expects “further acceleration” of order growth in 2021. This would appear reasonable given that UK orders were up 88% over January and February. Delivery orders also soared more than 600% compared to the same period in 2020.

Shares in JETS could also be boosted by the eventual sale of the firm’s 33% stake in fast-growing Brazilian food delivery startup iFood. The company has already received several bids from rivals — the best so far being €2.3bn.

Having said this, an investment in JET isn’t without risk.

Buyer beware

Arguably the biggest hole in the investment case for me is the fact that the company still doesn’t make a profit. A loss of €151m was recorded for 2020. While a lot of this is the result of the costs incurred from the Just Eat and merger, things could get worse before they get better.

The FTSE 100 member may be market leader in the UK right now, but maintaining this position will still require significant ongoing investment, the spoils from which will only be delivered much further down the road. That might be acceptable for long-term investors but I don’t think anyone should ignore the opportunity cost of holding the stock in the meantime. The forthcoming listing of one of its biggest rivals won’t help matters. 

It may also be argued that Just Eat Takeaway’s purple patch could end once lockdown restrictions are lifted and we’re allowed to eat in restaurants once more. Takeaways will always be popular, of course, but a slowing of momentum seems inevitable if/when the good weather arrives and people are permitted to socialise freely again.  

Bottom line

As encouraging as today’s share price rise in Just Eat Takeaway is, I don’t think investors should get carried away. For me, there are far higher quality companies generating consistent profits elsewhere in the market more deserving of my capital. Only the patient need apply here, I feel.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat N.V. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.