The Deliveroo (LSE: ROO) share price rose by around 7% yesterday (10 August). This is a considerable jump for a company that I thought would suffer from the lifting of pandemic restrictions.
So what’s fuelling the price rise? Well, the surge follows news that German peer Delivery Hero has bought a 5.09% stake in the firm. So I’m wondering whether it’s still possible for me to jump on board the rising share price and whether I should.
A vote of confidence
Delivery Hero is a Berlin-based food delivery service with operations in over 40 countries in Europe, Asia, Latin America and the Middle East. It doesn’t compete with Deliveroo in its biggest market, the UK, but they do battle it out for market share in the Middle East, Hong Kong and Singapore.
Its 5.09% stake in Deliveroo now makes it one of the top-10 shareholders of the company. I see this investment as a vote of confidence in Deliveroo despite wider uncertainty about the food delivery industry’s growth prospects at the start of the post-pandemic era. I myself assumed that the company’s growth would stagnate during this time and that this would be reflected in the Deliveroo share price.
It’s also worth mentioning that Delivery Hero has a history of buying big stakes in its competitors. It owns stock in Just Eat, Spanish company Glovo and Zomato in India. Clearly, Delivery Hero is a big player in the food delivery industry and its stake in Deliveroo has given me some belief that the future looks promising.
The lifting of pandemic restrictions
However, I believe it would be unwise of me to throw all of my post-pandemic caution out of the window just yet.
I think it is safe to say that the food delivery industry benefited from the lockdowns due to the Covid-19 outbreak. But now that restrictions are loosening or even ending, I don’t see how the delivery service can continue to grow as fast as it did during lockdowns. The vaccine is proving effective against infection rates with 75% of all adults now reportedly doubled vaccinated. People are allowed to go out for dinner, and can go to the supermarket with less concern. This could move them away from ordering food online and could damage the Deliveroo share price.
Is it too late to buy?
I suspected that the Deliveroo share price would go down in the months following ‘Freedom Day’. So this share price rise has really thrown a spanner in the works.
I think we might see rises over the rest of the week for the share price and, in theory, I could make short-term gains if my prediction is correct. But I’m a long-term investor, not a trader. Thinking long term, I feel the rise may not be sustained during the months and years to come.
The thing is, with Deliveroo having listed only recently, I don’t believe I have enough information to judge just yet. I’ll wait first for a financial report to see what kind of growth Deliveroo is predicting.
