This FTSE 100 stock fell 7% on Friday. Should I buy?

This FTSE 100 stock has fallen by a large amount in 2021 so far. But the shares took another hit on Friday. Is now a buying opportunity for me?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Risk reward ratio / risk management concept

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I covered FTSE 100 company Just Eat Takeaway.com (LSE: JET) earlier this month. And I said that I’d watch the stock closely. The shares fell over 7% on Friday on the back of some news, which I’ll discuss shortly.

So should I buy now? Well, I’m still going to monitor the share price. I reckon the company is facing some headwinds, which could impact its growth prospects. Here’s why it remains on my watch list.

The news

Last week, New York City Council approved legislation to permanently cap commissions online food delivery firms can charge restaurants. This is going to impact the likes of Just Eat and competitors such as Uber Eats.

The new bill means that the FTSE 100 company will only be able to charge restaurants in the region of 15% on food orders and 5% for marketing. This news comes after restaurants have been temporarily closed to eat-in customers during the pandemic and have had to pay commission charges as high as 30%.

Concerns

This doesn’t bode well for Just Eat. It purchased Grubhub to gain exposure to the US food delivery market. But it now has to contend with this issue. So what does this mean? Well, its revenue and profit potential is likely to be limited in the region. This means it will have to rely on volume growth rather than increasing its fees.

So far, New York City hasn’t enforced the bill as law. But if it does, I wonder how long will it be before other regions in the US might follow suit. In fact, this could even extend to other cities worldwide.

If this did happen, it would hit Just Eat’s revenue and profitability prospects. It would also make its acquisition of Grubhub seem expensive as it deals with this new legislation.

What happens now?

Grubhub has said that “this permanent price control is flagrantly unconstitutional and will hurt local restaurants, delivery workers and diners across NYC. We will vigorously fight this illegal action”.

I guess Just Eat’s competitors will be appealing this decision too. Of course this will take time and there’s no guarantee anything will come of it. But what it has done is create a headwind for the company and the online food delivery sector.

Results

This comes after the FTSE 100 firm announced its half-year results earlier this month. Revenue growth was strong at 52% with the help of the Grubhub acquisition. Sales improved across all regions and it delivered strong revenue performance in the UK and Germany. The momentum experienced last year seems to have continued into 2021 so far.

But profitability for the six-month period took a hit. Increased marketing costs and tight labour markets in the US reduced profits.

Should I buy?

As I said, I’m worried about the headwinds the FTSE 100 company is facing right now. Increased investment and costs are eating into profitability. And those commission caps in New York City could be a huge issue if they spread to other cities. For now, I’ll continue watching the stock.

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.

More on Investing Articles

Investing Articles

Up 75% in 5 years, I reckon this FTSE 250 still has lots to give!

Our writer explains why this FTSE 250 stock could still continue to provide growth and returns despite already being on…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 high-quality FTSE 250 stocks to consider buying

The FTSE 250 is home to some of the best investment opportunities out there. This Fool highlights two stocks for…

Read more »

Investing Articles

The Marks and Spencer share price dips! Is this my chance to buy?

Marks and Spencer was one of the hottest stocks on the market last year. With its share price falling in…

Read more »

Growth Shares

How low could the boohoo share price go?

Jon Smith explains why the enterprise value and the low risk of bankruptcy should help to prevent the boohoo share…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Down 23% in a year! Can the Diageo share price regain £30 in 2024?

This Fool UK writer is checking the charts to see if the Diageo share price can recover from the recent…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

I wouldn’t touch this FTSE 100 stalwart with a bargepole

Despite looking like a bargain on paper, this Fool is avoiding FTSE 100 constituent Vodafone at all costs. Here he…

Read more »

Investing Articles

I’m waiting for the Rolls-Royce share price to pull back before I buy

The Rolls-Royce share price has been the Footsie's best performer in the last year. But this Fool has no intention…

Read more »

Front view photo of a woman using digital tablet in London
Dividend Shares

2 dividend stocks to take me from £0 to £9.5k in second income

Jon Smith talks through some ideas with second income potential, including one stock that has a dividend yield above 10%…

Read more »