The Deliveroo share price is rising. Should I buy?

The Deliveroo share price has recently been surging. This Fool takes a closer look at why this is and whether she should buy now.

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It was only a few months ago that the Deliveroo (LSE: ROO) initial public offering, or IPO, was being dubbed as the worst in London’s history. But more recently, the stock has been rising. In fact, over the past month the Deliveroo share price is up 25%.

So are things beginning to turn around? Well one thing is for sure, some uncertainty surrounding the company has been lifted. If there’s one thing I’ve learnt about stocks, is that the market doesn’t like ambiguity. But I’m not a buyer just yet and Deliveroo shares still remain on my watch list.

Uncertainty

One thing that was preventing the Deliveroo share price from rising was the employment status of its riders. But as my fellow Fool, Edward Sheldon, has pointed out, a UK court has ruled the company’s couriers as self-employed.

Naturally, the shares surged on the back of this news as it avoids a headache for Deliveroo. It’s worth noting here that if the riders were considered employees it would mean higher costs for the food delivery company. 

Let’s not forget what happened with Uber, when Britain’s Supreme Court ruled that a group of its drivers were workers rather than self-employed. This led to speculation as to how this would affect other companies with similar business models.

Now that this uncertainty has been removed for Deliveroo, it’s one less obstacle for the firm. And a reason why the Deliveroo share price has been rising recently.

Other reasons

But I don’t think this is the only reason why the shares have been surging. The company delivered an impressive set of results for the first quarter of 2021. Deliveroo also announced in April its grocery partnership with Waitrose.

This is a vital part of Deliveroo’s expansion strategy across the UK. So far the sale of Waitrose products through the food delivery company has proved popular. And it’s also helping to attract new and younger customers. It’s a win for both Deliveroo and Waitrose so far.

Would I buy now?

While the recent news is positive, I’ll just be monitoring the Deliveroo share price as I do have some concerns.

The first one is that the company faces fierce competition from the likes of Uber Eats and Just Eat. Customers are fickle and want value. It’ll have to distinguish itself from its competitors and I personally don’t think it’s there yet.

The second one is that Deliveroo is not generating any profit yet. A loss-making company isn’t necessarily a bad thing but the firm has to have a clear route to profitability. I’ve yet to see this. Especially when it has highlighted the uncertain outlook over the coming months, with the timing and the easing of Covid-19 restrictions being lifted. 

Even the firm has stated that it “expects the rate of growth to decelerate as lockdowns ease, but the extent of the deceleration remains uncertain”. Personally, I’m uncomfortable with this uncertainty and so I wouldn’t be a buyer of the stock just yet.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Nadia Yaqub has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat Takeaway.com N.V. and Uber Technologies. 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.

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