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Why I might buy Just Eat shares after 7% price surge

Shares in Just Eat (LSE: JE) soared by 7% on Thursday morning, in response to an impressive set of Q3 results.

While online food delivery is still in its infancy and at a stage where there’s still room for new competitors, I reckon Just Eat’s early-mover status puts it in a commanding position in the business. It’s also built up a well-known brand that people tend to think of first when ordering a takeaway.

Revenue is growing very strongly, with a 41% gain for the quarter to £195.3m (43% at constant currency). And for the nine months, we saw a 44% increase to £553.7m (45% at constant currency).

In the UK, Just Eat enjoyed its first ever weekend with more than a million orders in September, and that helped counter a bit of a slowdown caused by the scorching weather of the previous two months.

Its Canadian business, SkipTheDishes, saw revenue grow in “triple-digits“.

Guidance

Full-year revenue is expected to come in “towards the top end of the £740 to £770m range,” with underlying EBITDA “towards the lower end of the £165 to £185m range.”

One thing that does concern me a little is the share price chart, which shows characteristics of a typical growth bubble — and they usually turn downwards pretty quickly.

There’s a forecast 2019 P/E multiple of a bit under 27, which is almost twice the long-term FTSE 100 average, and that might look a bit toppy.

But I think Just Eat’s growth potential means it could well be decent value — and there could be a fair bit more to come.

Soaring price

Fellow Fool Royston Wild liked the look of dividend hikes at 4Imprint Group (LSE: FOUR), and shareholders will certainly like Thursday morning’s 16% jump in the share price. 

Shares in the direct marketing firm have more than trebled in value over the past five years, outstripping Just Eat’s, so is this possibly a growth bubble that’s set to burst? Again, I think not.

Thursday’s trading update speaks of the 4Imprint’s “strategic goal of $1bn in revenue by 2022,” and reckons that the second half has so far lived up to its promise with “overall demand consistent with the growth percentages experienced in the first half.”

Guidance has been upgraded, with full-year revenue and underlying operating profit both now expected to be towards the upper end of current market forecasts.

That suggests the consensus for a 24% improvement in EPS for the year could be short of the mark. On the current share price it gives us a forecast P/E of 22, which is certainly nothing like the big valuations we’ve seen for some over-hyped growth shares.

Still good value?

Current 2019 predictions would drop the P/E to 19, and I really don’t see that as too high for a company with 4Imprint’s growth potential.

The dividend looks set to continue growing at a pace well above inflation too and is expected to be twice covered by earnings. Forecast yields stand at 2.5% and 2.9% for this year and next, and I rate that as impressive at this stage.

Investors often scratch their heads over whether to go for earnings growth or dividends, but 4Imprint looks set to deliver both.

Capital Gains

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat. 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.