3 reasons why I’m staying away from the Just Eat share price

Jonathan Smith explains some risks he sees with the Just Eat share price, including dropping out of the FTSE 100 index and the half-year results.

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Just Eat Takeaway.com (LSE:JET) is a Dutch company listed on the FTSE 100. Thanks in part to celebrity marketing adverts, it’s a well-known food delivery service in the UK as well as operating in several other markets around the world. The Just Eat share price is down over 20% over a one-year period, which is somewhat underwhelming. Personally, I don’t see much value in investing. Here’s why.

Dropping out of the FTSE 100

In recent news, it has been announced that Just Eat is going to be removed from the FTSE 100. This isn’t due to the market capitalisation, but rather nationality. The FTSE Russell team, which manages the composition and make up of the index, has stated that it’s a Dutch company, not British (as Just Eat alone once was).

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From this angle, it isn’t allowed to be included in the FTSE indices. On the face of it, this might seem just an administrative change. Yet I see this as a negative for the Just Eat share price.

The volume of money in FTSE 100 trackers is huge. The size of assets managed by funds that have a mandate to invest in FTSE 100 stocks or FTSE-listed stocks is also very large. Just Eat will no longer be included in the portfolios of any of these! The removal of it from the FTSE 100 will therefore see portfolios selling the stock and buying its new replacement. So I think the Just Eat share price could see pressure on it in the near-term.

Other issues for the share price

Another reason for concern is its half-year results. There was some positive news within the report, with revenue growth of 47%. The gross transaction value (GTV) of orders was also up 63%. 

Yet when I compare this to the main competitor (Deliveroo), these figures aren’t that strong. Deliveroo saw revenue growth of 100%, with GTV growth also in triple-digits. The market is growing, and unfortunately, even though Just Eat has shown growth, it’s not all that special in comparison.

So when I compare the Just Eat share price to Deliveroo’s, I know what I’d rather be focusing on.

The results also showed that Just Eat is loss-making. As my colleague John Town flagged recently, these losses were driven by the UK and US businesses. The US business accounts for 25% of all orders, so this is a real issue for the company. It either needs to diversify operations further, or look to turn around in the US.

I do note that my opinions on Just Eat (and the share price) could be wrong. The company is still showing positive growth, and this could see it flip to profitability if it’s sustained.

Further, there are institutions that can invest in any stocks chosen, so the drop out of the FTSE 100 might be cushioned. If enough large investors stick with the company, the share price could recover in the long term.

Overall though, I don’t see enough positive reasons to buy shares, so am staying clear.

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jonathansmith1 holds shares in Deliveroo. The Motley Fool UK has recommended Just Eat Takeaway.com 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.

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