Just a few days ago the FTSE 100 food delivery provider Just Eat Takeaway (LSE: JET) touched impressive highs. But the rise in the JET share price to £90+ levels was short-lived. In a span of days it has fallen by more than 18%. It’s now at levels last seen during the stock market crash, triggered by JET’s takeover of the US-based Grubhub.
It’s not unusual for the acquiring company’s share price to fall on such announcements. The reverse is true for the acquired company. Both the Just Eat Takeaway share price and GrubHub’s share price trends are proof of this. However, the $7.3bn buy needn’t be a long-term negative for JET’s share price. It’s true that an acquisition always carries the risk of integration challenges. Corporate history is strewn with examples of well-meant deals that went awry. This risk is particularly high for JET, which itself was very recently formed through the merger of UK’s Just Eat and the Dutch Takeaway.com.
Consolidation in the food-delivery industry
But it’s also true that this is a time for consolidation in the food delivery industry. The industry is still young. Takeaway.com was formed only two decades ago, for instance. There has been a proliferation of these services in the years since. Gaining market share, then, became a key means to ensure stability in revenues and ensure future growth in an otherwise fickle consumer market. The fact that GrubHub almost got acquired by Uber, shows the severity of competition among the top players in the industry now.
Much long-term potential
Besides just expanding in size, JET now has access to the big and growing US markets through GrubHub, where it hadn’t operated so far. I liked the long-term potential for the JET share price because of its business in any case. The latest acquisition has only added to its attractiveness for me. Online markets are changing the face of business, and the likes of JET are leading the changes in the food delivery industry. As consumers, many of us have first-hand experience of the convenience that apps like JET and its rival Deliveroo offer. I’m sure if we were skeptical earlier, the restrictions imposed by lockdowns have turned at least some of us into staunch converts.
Verdict for the Just Eat Takeaway share price
This is all very good. But its financials can’t be ignored. JET’s a loss-making company, which isn’t surprising either. It’s the price of gaining market share in a competitive market. The company’s debt-to-equity ratio has also been on the rise per Financial Times data. I’d keep an eye on this ratio if JET continues to feed its appetite for acquisitions.
Much as I like to invest in profit-making companies, JET’s an exception because of the nature of the industry. It seems to be on the right path, which gives me confidence. It’s gaining market share, which increases its chances for success. I think it would be worthwhile to buy at the current JET share price, when it’s still subdued.
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Manika Premsingh 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.