I’ve owned Deliveroo (LSE:ROO) shares since the IPO earlier this year that saw them priced at 390p. After a disappointing start to life as a public traded company, the share price rallied and touched 390p back in August. Unfortunately, it has taken a nose dive since then to trade at 286p. Disappointing yes, but I’m not thinking about selling my shares at the moment, and here are a few reasons why.
Deliveroo knows that it needs to keep developing its operations in order to stay ahead of competitors. I think the business is working hard in this regard, shown by recent news about a new service.
Deliveroo Hop will allow users to order groceries-on-demand, receiving them in as little as 10 minutes. Of course, with partnerships with existing supermarkets in the UK, I could already order groceries if I needed to. Yet this new offering will use delivery-only warehouses, stocked with Morrisons products. As such, it allows a much quicker process for the rider to pick up stock and deliver it.
I think this is a good move for several reasons. Firstly, it strengthens ties with suppliers such as Morrisons. This could be beneficial in the future for other initiatives that Deliveroo could push through. Secondly, it offers that slight advantage with regards to speed of delivery. It might only be a few minutes faster than competitors, but in a world where we want everything now, that difference really is important.
Deliveroo shares are unlikely to massively rally in the short run over this. But looking into next year and beyond, this initiative could pay dividends.
Company growth should aid Deliveroo shares
Another reason why I think Deliveroo shares have good potential is due to growth expectations. The latest update I have is from August, which stated that growth was materially ahead of expectations. This was shown via gross profit being up 75% versus the same period last year.
I was also pleased to note that Deliveroo is “seeing strong growth and engagement across our marketplace as lockdowns continue to ease”. One of the largest concerns I had was that a large hit to Deliveroo turnover (and the shares) could be seen if consumers go back to eating out. This hit to revenue doesn’t appear to be the case for now.
This doesn’t mean that there aren’t any risks for Deliveroo shares looking forward. I need to remember that the company is still loss-making. I think this would be an issue for some investors who might otherwise invest. With the losses narrowing, it looks like profitability will be reached late next year if growth continues. However, this is by no means guaranteed.
Overall, I won’t be selling my Deliveroo shares any time soon. With the dip at the moment, I’d actually consider buying if I wasn’t already holding some shares. I think the push for more developments and strong growth rate should put the company in a great place in the longer term.
jonathansmith1 owns shares in Deliveroo Holdings Plc. The Motley Fool UK has recommended Deliveroo Holdings Plc. 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.