The Motley Fool

This FTSE 100 share jumped 7% on Wednesday. I think it should come with a warning!

Image source: Getty Images

Just Eat Takeaway (LSE: JET) has been a big hit with growth investors during the 2020 Covid pandemic. At one point in October, the share price was up 20% year-to-date. The FTSE 100, at the time, was down 20%. And I think it’s easy to understand the enthusiasm.

During the lockdown, restaurants were all closed, with non-essential stores all shuttered too. And when restrictions were eased, those producing cooked food were only allowed to sell it as takeaway. In those conditions, a delivery service like Just Eat was a lifeline.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

But after that October peak, Just Eat shares lost all of their 2020 gains. And, at market close on Tuesday, we were looking at an 8% loss since the start of the year. But then on Wednesday, after a lacklustre morning for the shares, they took off in the afternoon. Just Eat ended with the FTSE 100’s biggest gain, up 7.3% on the day. Do we have a second growth surge on our hands?

Employment practices

The Wednesday afternoon jump came on the back of an announcement about employment practices. With the so-called gig economy coming under increasing pressure, Just Eat is changing the way it treats its couriers. A new approach will shift the firm to a mix of full-time, part-time and zero hours workers.

All of them will get minimum or living wage, pension contributions, holiday and sick pay, and parental leave. The company says it will take on more than 1,000 new people by the end of March, adding to its current 1,500 strong UK workforce.

My flashing warning

This does seem to be an enlightened move, but is the share price hike justified? And would it put Just Eat among my list of FTSE 100 buys now? Well, I certainly wouldn’t buy, and I’ll explain why. I can sum it up with something that flashes across my mind when I examine Just Eat’s financial situation.

It’s not about revenue. No, that’s growing strongly, and I expect it to continue. It’s not about market dominance either. Just Eat has been expanding rapidly, both organically and by acquisition. And it’s not due to any doubts about market potential. I know people will flock back to the pubs when they’re properly open again. But, at the same time, I expect takeaway delivery volumes to continue to grow.

Heady FTSE 100 valuation

The message flashing in my head is: Warning, P/E of 150 ahead!

To give that some perspective, the FTSE 100’s long-term average is closer to 14. Now, sure, growth shares do deserve higher P/E multiples. I’ve bought some at very high valuations before now. And that multiple of 150 is for 2020, and would drop in 2021 — though only to 110. The same ratio at October’s share price peak stood at 180, so the stock’s valuation has already fallen.

I’ve seen UK shares trading on similar high valuations before. But I don’t think I’ve ever seen one whose share price didn’t later crash. My Motley Fool colleague Roland Head sees a possibility of a 40% fall in 2020. I do too. And I fear we’ll have further declines before any long-term sustainable bull run gets going. 

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

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

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.