When I last covered the Deliveroo (LSE: ROO) share price, things were looking pretty bad for the firm. Issued at a price of 390p on 31 March, the shares finished IPO week over 100p lower. The share price then sank all the way to 230p in late April — a harsh loss for investors who had bagged some shares at the start. However, July seems to have brought a new sense of optimism for Deliveroo, as the shares have recently climbed back above 300p.
Cause for concern?
Deliveroo released its 2021 Q1 results on 15 April. The figures were very encouraging for the company. However, what concerns me is how these results were perceived. Group orders were up 114% year-on-year and transactional value was up 130% over the same period, reaching £1.65bn. This marked a fourth consecutive quarter of growth for the firm. I would have expected these stellar results to drive up the Deliveroo share price. Yet the week after these results were issued, the share price fell by 11%. This concerns me and may highlight a wider negative sentiment towards Deliveroo.
This sentiment can be explained by some of the wider ethical concerns surrounding the company. Several institutional investors including BMO Global, and Aviva announced that they would be steering clear of Deliveroo due to the poor treatment of its workers. Problems like this could continue to haunt the share price in the future.
Reasons for share price growth
But there’s change afoot. In the past 30 days, the Deliveroo share price has risen 20%. A key driver behind this growth is the fact that Deliveroo has just won a legal battle to keep its workers classed as self-employed. This good news for the firm as it means that it can avoid the extra costs incurred by classifying workers as employees. This was the case with Uber, where courts ruled drivers would be eligible for the minimum wage and sick pay. The saved costs will improve Deliveroo’s balance sheet and speed up the company’s move towards profitability.
In addition to this, its Q2 earnings report helped drive up the share price. Year-on-year orders and transactional value increased 88% and 76%, respectively. While these results initially drove up the share price, Deliveroo stock finished the day 4% lower than its opening price. That reinforced my wider concern over the share price, although there’s no denying that it’s in a better place in July compared to several months ago.
Will we see more growth?
I think the Deliveroo share price has the potential to rise higher in the future. If the half-year results (set to be published on 11 August) show more growth, I think we will see a rise in the price. However, whether this rise can be sustained is down to wider sentiment towards Deliveroo and its worker treatment. I believe it will be a long time until we reach the 390p IPO level again and therefore I won’t be buying any Deliveroo shares for my portfolio today.
Dylan Hood has no position in any shares mentioned above. The Motley Fool UK has recommended Uber Technologies. 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.