2021 has been a roller-coaster ride for shareholders in Deliveroo Holdings (LSE: ROO). Founded in 2013, the online food-delivery company floated in London on Wednesday, 31 March. Alas, this IPO (initial public offering) was a massive flop, as the Deliveroo share price plummeted on its opening day.
The Deliveroo share price flops
The initial Deliveroo share price was set at 390p, valuing the group at £7.6bn. Usually, IPOs are priced to give institutional investors a first-day ‘pop’ (uplift). However, when trading opened on that Wednesday morning, the shares went into freefall. In the largest London IPO since 2011, Deliveroo shares crashed to 271p, down 119p (-30.5%) within minutes. One banker called this, “the worst IPO in London’s history”. ROO’s rocky ride continued, with the shares crashing to a post-IPO intra-day low of 224.44p on 23 April. As the Deliveroo share price spiralled southwards, I was relieved not to have invested in this IPO.
ROO roars back to life
On 22 April, with ROO trading at 231.12p, I said the shares still looked expensive to me. But I was utterly wrong. As it happened, 21 April marked the low point for the Deliveroo share price. However, the stock mostly moved sideways until late June, closing at 251.6p on 23 June. But then it took off on a terrific two-month surge, soaring to new heights. On 18 August, it peaked at an intra-day high of 396.8p, 6.8p (+1.7%) above its IPO price. From April’s low to August’s high, ROO had surged 172.36p. That’s a huge gain of more than three-quarters (+76.8%). Boy, how wrong was I on 22 April, huh?
Would I buy ROO today?
As I write late on Monday, the Deliveroo share price hovers around 298p, roughly 20p below the middle of its price range. This values the food-delivery firm at £5.4bn. I don’t own ROO shares, but would I buy them at current price levels?
As a veteran value investor, it’s not easy for me to invest in go-go growth stocks like ROO. First, as a heavily loss-making business, Deliveroo has no fundamentals (profits, earnings per share, or dividends) to guide me with regard to the Deliveroo share price. Second, I regard this group as a logistics company, rather than a tech business. Third, future changes to employment law might make it more expensive to employ tens of thousands of ‘gig workers’ (independent contractors). Fourth, Deliveroo’s dual-share structure concentrates power in the hands of founder Will Shu. This means that it can’t be included in the FTSE 100 index, which puts me off somewhat.
On the other hand, if I were to view Deliveroo as a data-rich, hyper-growth tech stock, then its shares might actually appear cheap today. The food-delivery market is booming and Deliveroo is a big player, along with UK arch-rival Just Eat. But who’s to say either of these firms will actually emerge as a profitable market leader? As billionaire investment guru Warren Buffett said on 1 May about growth stocks, “There’s a lot more to picking stocks than figuring out what’s going to be a wonderful industry in the future.” To sum up, as an old-school value investor, I would not buy ROO stock today. Then again, growth investors just might. And one great set of results might send the Deliveroo share price leaping, leaving me with egg on my face for a second time!
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.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.