After surging higher during the first lockdown last year, Just Eat Takeaway.com (LSE: JET) stock has gone into reverse. Just Eat’s share price has fallen by 30% in 12 months.
In its latest update, JET said that its losses have now bottomed out. Management now expects the company to gradually become profitable. With sales up by 52% to €2.6bn during the first half of 2021, the business seems to have good momentum. Will today’s results help the shares to rally as we head into September?
135m orders in the UK
During the first six months of 2021, Just Eat handled 135m orders in the UK alone. That’s roughly two orders for every person in the UK.
In reality, the orders came mostly from a smaller number of repeat customers. Just Eat Takeaway says that 67% of customers are repeat buyers. On average, each customer ordered 3.2 times per month, up from 2.5 times one year ago.
The big risk in my view is that this surge in demand was driven by the lockdown periods in many western countries during the first half of the year. With life mostly back to normal, can Just Eat maintain this kind of momentum?
Why I like this business
The number of food delivery companies is shrinking as they combine and merge. JET was formed from Just Eat and Takeaway.com. The combined group has already snapped up another key player, US group Grubhub.
Larger companies should find it easier to become profitable, in my view, as they have higher customer density — more customers per square mile.
Indeed, although the group is still loss-making, many of its international operations are profitable on an underlying basis. Just Eat’s share price is up by 3% as I write today, perhaps because the group’s half-year results show that Germany, Canada, and the Netherlands all generated an underlying profit during the period.
The main loss-making regions were the UK and USA — both of which are additions to the core Takeaway.com network.
With proven profitability in some western markets, I don’t see why the UK and USA operations can’t be made profitable too. Management said that the UK has suffered from a lack of investment in the past, but that this is now being corrected.
Just Eat share price: where next?
Despite the stock’s slide, Just Eat shares are still priced for growth, in my view. The stock trades at roughly three times 2021 forecast sales, but analysts do not expect a profit until 2023.
The latest forecasts I can find suggest JET will generate earnings of 96 euro cents per share in 2023. That would put the stock on a price/earnings ratio of 75 today. Not exactly cheap, especially for two years from now.
I think this company’s large size and good market share will help it to become a long-term winner in this sector. But I don’t see anything in today’s results to suggest that the shares will rally immediately from current levels. In my view, this business is probably priced about right just now.
Just Eat’s lack of profitability means it’s not something I’ll buy for my portfolio today. But I’m encouraged by progress and will keep watching with interest.
