There’s little doubt the crashing Deliveroo (LSE: ROO) share price has been one of the main stock stories of 2021. Its IPO on Wednesday probably couldn’t have gone worse. And there could be more pain to come as well.
Fraser Thorne, chief executive of Edison Group, believes that “Deliveroo’s share performance on its stock market debut is another sign that market sentiment for the gig economy is changing.” He notes the growing pressure over how such companies operate since Uber lost a landmark case to its workers in February.
Thorne notes that Deliveroo’s failure to acknowledge ESG (environmental, social and corporate governance) issues “are likely factors in the lack of demand for [its] shares.” What’s more, he says that “the oversight on the S and perhaps some bending of the G… has left the company with a real risk to its valuation and the price now reflects this.”
Fearing for the Deliveroo share price
There’s a lot I like about Deliveroo. Sure, the food delivery market is set to contract sharply in 2021 following last year’s lockdown boost. But the outlook for this industry in the medium-to-long term remains robust.
Deliveroo has a strong position — and now plenty of financial clout — to make the most of future opportunities. I also like the UK share’s commitment to delivering restaurant-quality food which puts it ahead of rivals like Just Eat.
That said, I just can’t get my head around the company’s valuation. Concerns that the Deliveroo share price offers poor value is one of the reasons why the delivery firm has plummeted. So, I’d wait for some of the froth surrounding the IPO to disappear as it should then be easier to judge what Deliveroo’s shares are actually worth.
The intensifying pressure on companies like this to reform their worker policies is also encouraging me to sit on the sidelines right now.
I don’t see why UK share investors like me need to take a risk with the Deliveroo share price either. There’s plenty of other quality stocks out there to choose from, after all.
A better FTSE 100 buy
I think FTSE 100 bank Standard Chartered (LSE: STAN) is a much more attractive stock right now. This is because I think its focus on fast-growing Asian and African emerging markets should deliver rich rewards. The number of people in these regions which own banking products is low compared with Western standards.
Yet soaring population levels and rising wealth means that demand for such services should soar, giving this UK share massive profits opportunities. McKinsey analysts think personal financial assets in Asia will account for three-quarters of the global total by 2025.
That said, a lumpy economic recovery in StanChart’s territories could well hamper earnings growth in the short-to-medium term. The World Bank has warned that the Covid-19 outbreak and associated restrictions forced poverty rates up in East Asia and the Pacific for the first time in 20 years in 2020.
But the FTSE 100 bank looks dirt cheap, trading on a forward price-to-earnings growth (PEG) ratio of 0.2. And this makes it highly attractive, in my opinion.
