Deliveroo (LSE: ROO) may have started out as a food delivery company, but it is clearly keen to branch out. In April, it struck a deal with supermarket Waitrose for grocery deliveries, after a successful trial run over the past two years. Then earlier today reports of a similar trial with leading British pharmacy chain Boots came in.
At present, the trial is being launched in 14 locations across the UK, including cities like London, Birmingham, and Edinburgh. Only time will tell how the experiment of supplying pharmacy products like over-the-counter medicines and toiletries will work. But it does indicate the company’s increasing diversification, which also includes supplying groceries from supermarkets like Morrisons, Sainsbury’s and Aldi, besides Waitrose.
It is still a small segment for Deliveroo, accounting for around 7% of its transaction volumes in the first-half of the year, but I think it is well worth watching out for.
What’s next for the Deliveroo share price?
The company’s stock has not responded much to the news. But it is worth noting that its share price has been on the rise for sometime now anyway. It rose to 395p last week, finally reaching a level higher than its IPO price of 390p. It has softened a bit from these levels now. But it is still more than 70% higher than the lows it fell to within the first month of its listing.
Based on its momentum so far, its latest partnership with Boots and general stock markets’ buoyancy, I think it is quite possible that its share price will cross 400p soon.
What can go wrong
However, things may go south for it too. Investors in its IPO had a lock-in period of 180 days, which means that from next month onwards, they will be able to sell the stock if they like. If the Deliveroo share price rises significantly more from the current levels, that can be a good opportunity for them to sell at a profit. Even if it does not, investors may still sell if they are pessimistic about its prospects. This could drag the stock down.
Besides this, as more people are getting vaccinated and life has all but returned to normal, delivery orders could take a hit. Some of it is already built into Deliveroo’s forecasts, but the extent remains to be seen.
I am quite bullish on the share, though. In fact, I bought it shortly after its underwhelming IPO because its price looked abysmal to me. In the long run, online sales will become even more commonplace than they are now. Companies that are leading this transformation could be well placed, in my view. So whether or not the Deliveroo share price rises or falls in the immediate future is less of a concern of mine, from an investing perspective. I am more focused on trends in online sales over time. It continues to be a buy for me.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
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Manika Premsingh owns shares of Deliveroo Holdings Plc. The Motley Fool UK has recommended Morrisons. 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.