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The Deliveroo share price rises as it announces Waitrose tie-up! Should I buy?

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Image: Deliveroo

The collapse of the Deliveroo (LSE: ROO) share price has been one of the biggest stock stories of 2021. The UK food delivery share has sunk a whopping 40% from its IPO price of £3.90 per share. But Deliveroo has managed to claw back some ground on Tuesday on news of a major tie-up with a major supermarket.

Last trading at 238p, the Deliveroo share price is up 4.5% from Monday’s close. The takeaway titan has risen after announcing a two-year partnership deal with the Waitrose premium supermarket chain.

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The Deliveroo share price bounces back

Following what it describes as a “successful” trial period, Deliveroo said that it will expand the programme to an initial 110 stores. By the end of the summer it hopes to be able to deliver items from some 150 Waitrose supermarkets in a move that will “take the number of people who are able to enjoy Waitrose food on Deliveroo to around 13m.”

The recent trial began running from five Waitrose shops before rising to 40 at present. Deliveroo says that sales of the grocer’s goods “have been strong and it’s helping to attract new and younger customers.” Deliveroo customers will also be able to order an increased range of between 750 and 1,000 of Waitrose’s products under the new programme.

Explaining the reasons behind the deal, Deliveroo commented that “the partnership is a central part of [our] expansion strategy across the UK, currently at 60% of the UK population, as the company aims to build the best proposition to attract new consumers, restaurants, grocers and riders throughout 2021.”

A Deliveroo rider on the move

Would I buy this UK share?

Today’s announcement comes on the back of some strong trading numbers released earlier in April. Then Deliveroo explained that orders soared 114% during the three months to March, to 71m, the value of which rocketed 130% to £1.65bn.

Encouragingly this is the fourth successive quarter of accelerating growth at Deliveroo. And it hopes that tie-ups with the likes of Waitrose will help sales continue to rise at a mind-breaking pace. The proceeds of last month’s IPO will help it to invest to keep revenues shooting through the roof too.

It remains to be seen whether Deliveroo will experience a sharp slowdown in sales once Covid-19 lockdowns are rolled back across its territories. But these are not the main reasons why I worry that the Deliveroo share price could resume its recent slide. Concerns over the company’s labour policies — and the necessary (and costly) changes it may have to make — have been a major driver behind the sinking share price of late.

Evidence that the Deliveroo share price may still look too expensive versus some of its rivals like Just Eat is another reason why I fear fresh waves of investor selling. For these reasons I’d still much rather buy other UK growth shares today.

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Royston Wild 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.

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