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Is Just Eat stock a better buy than Deliveroo shares right now?

Image: Deliveroo

It’s been a rocky start to publicly traded life for Deliveroo (LSE: ROO) stock. The food delivery business has seen its share price fall from 287p on opening day to almost 269p now.

I wonder if Just Eat Takeaway  (LSE: JET) is a better choice for my portfolio right now.

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Deliveroo’s slow start

Deliveroo appears to be gaining popularity among retail investors, rising this week from a low of 242p. I am also impressed by the Amazon-backed company’s 2020 revenue of £1bn — up 54% year-on-year. This was made even more impressive by the fact that its losses did not widen in this period. For these reasons, it could be a strong growth stock going forward.

But my pre-IPO concerns began when notable investors, Aberdeen Standard and Aviva, said they would not be taking part in Deliveroo’s float. Deliveroo shares were then priced between £3.90 and £4.10 instead of the £3.90 to £4.60 range originally planned. 

This problem derived from a report that found Deliveroo ‘riders’ can earn less than £2 an hour, while CEO Will Shu bags millions. 

This issue continues to plague the firm. 

A tasty alternative

Across the sea is a strong UK-listed rival to Deliveroo but headquartered in Amsterdam. Just Eat Takeaway is the post-merger remodelling of UK-based Just Eat and Dutch Takeaway.com. The merger took place a year ago. 

Just Eat suffers from a lot of the same issues that many delivery companies do: 

  • Its 2020 losses amounted to £129.5m.
  • Gig workers’ rights issues have plagued the business. 
  • Food delivery is a heavily saturated market, in my opinion. Most participants in this sector engage in a race to zero in a bid to outprice each other. 

So, why do I think Just Eat is a better investment than Deliveroo?

Despite 2020 losses, orders soared 40% to 588 million deliveries, followed by Q1 2021 orders soaring a further 79%. This represents a 695% year-on-year increase in the first quarter of 2020. The Just Eat/Takeaway.com merger also gave the business a strong foothold in the UK and Europe. Just Eat recently partly ironed out its gig-worker issue and is permanently hiring many of its delivery riders. Just Eat has been a publicly traded company since 2014, and is a well-established stock. This means that there is less volatility in its share price. 

It has also reacted well to increased competition. In the UK alone, the company processed 64 million orders in Q1. New partnerships were also signed with brands such Chipotle and Starbucks, adding to Just Eat’s growing restaurant supply.

As of March 2021, it boasted more than 52% market share in the UK, compared to Deliveroo’s 22%. 

Should I buy Just Eat shares?

Just Eat shares have remained relatively flat in the past 12 months, from 7,854p in April 2020 to roughly 7,800p now. However, with a P/E ratio of -99.5x through March 2021, this shows that the company has negative earnings. This means that it is losing money, and if that remains consistent long term, it could be cause for concern.  

On top of this, I believe that the food delivery business model is caught in a dangerous competitive race. Essentially, I expect the entire industry to continue undercutting itself until losses become too much. Although Just Eat is in a strong position, the industry is not one that I am comfortable adding to my portfolio. 

Instead, I am looking to invest in these three UK shares in April.

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The Motley Fool UK has recommended Just Eat Takeaway.com 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.

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