Why I’d buy this crashing FTSE 100 stock on a dip now

The FTSE 100 stock has seen a big fall in the past year, but according to Manika Premsingh, it is a good time to buy it for her portfolio. 

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2021 has been kind to many FTSE 100 stocks, and indeed the index. But there are some that have really performed poorly this year. One of them is the food delivery company Just Eat Takeaway (LSE: JET). Its share price is down by more than 30% in a year. And recently, it touched its lowest ever level since the British Just Eat’s merger with the Dutch Takeaway.com. 

Why has the FTSE 100 stock fallen?

Some correction in the share price was expected. The company was a star stock last year during the lockdowns. We could not eat out so we ordered in, which was a great time for delivery stocks. The Just Eat Takeaway share price rose to new highs in a matter of months after the lockdowns began. But the gains were short-lived…

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The stock started plunging as soon as the stock market rallied on vaccine development in November last year. It has dropped around 45% since. While there have been periods of gains, the broad trend is downwards.  

Why this could change

However, I reckon that could change soon. In fact, it already is. In early trading today, the stock has made some gains and was even one of the biggest FTSE 100 gainers. The overall index is jittery today on news of the new coronavirus variant. The stock has since settled back a bit, but if this situation continues, I expect to see more increase in its share price over the coming days.

Just Eat Takeaway’s valuations are attractive

Even otherwise, the company does not look overvalued to me. It is a loss-making stock, which can be quite typical for those in fast-growing sectors. As such, the conventional valuation measure — the price-to-earnings (P/E) ratio — does not apply here. In lieu of that, I considered the price-to-sales (P/S) ratio, which is at 4.2 times. This is slightly higher, but still comparable to its FTSE peer Deliveroo, which trades at 3.7 times. I also compared it with another FTSE 100 e-commerce stock, Rightmove, just to get a better sense of where we are at. Turns out, that has a P/S of more than 24 times. So clearly Just Eat Takeaway looks severely undervalued by comparison. 

Besides this, its sales numbers still look quite strong. Even if the variant concerns turn out to be a false alarm, I expect the company to perform well. 2022 should be a year of recovery and that could increase consumer expenditure across categories, including food delivery orders. 

The concerns and my takeaway

There are concerns about the performance of Grubhub, which it acquired last year to gain a foothold in the US market. So far, growth in the US for the company has been far slower than that for its other markets. Considering that it is one of the biggest markets for it by orders, this is disappointing. 

But then, I do believe that it is too soon to write it off. If nothing else, I would wait and watch. But the share price is at such low levels, even considering the Grubhub challenge, I would buy it. 

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Manika Premsingh owns shares of Rightmove. The Motley Fool UK has recommended Just Eat Takeaway.com N.V. and Rightmove. 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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