Deliveroo (LSE: ROO) came to market in March, with an offer price of 390p per share. Then it went into a nosedive. The fast food delivery firm looked like it was set to become the latest in a line of UK IPO flops. But the Deliveroo share price has been regaining ground since May, standing at 314p as I write.
That’s still some way short of the offer price. But the performance is still far than the most widely publicised flotation failure of the past few years, Aston Martin. But where is Deliveroo likely to go by the end of the year?
A Q2 trading update in early July didn’t do much for the shares, despite an increase in full-year guidance. Gross transaction value (GTV) gained 76% year-on-year, to £1,739m. At the same time, orders increased 88%, to 78m in the second quarter.
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And the renewed guidance? “Deliveroo has seen continued strong growth and consumer engagement in H1, and as a result of that plus increased expectations for H2 is increasing the guidance for full year annual GTV growth from between 30% to 40% to between 50% to 60%.”
Acquisitions to come?
In addition to organic growth, the company also said it “sees an opportunity to make further discretionary investments into growth opportunities in the second half.” The company did also add that it now expects gross profit margin to be “in the lower half of our previously communicated range.” So maybe that’s what caused the Deliveroo share price to go off the boil a little.
My Motley Fool colleague Jonathan Smith made what I think is a key observation. He pointed out that in the comparative 2020 period we were in full lockdown, and that gave takeaway deliveries a boost. A year later, under far less strict regulations, Deliveroo’s orders are significantly higher.
Does that suggest we’re looking at a sustainable growth model here, and not just a pandemic flash in the pan? I agree with Jonathan. I think it does.
Deliveroo share price valuation
To get any feel for valuation, I’ll need to see a lot more than just the Deliveroo share price coupled with sales figures. I particularly want to examine the balance sheet, to see what debt and cash the company has. Cash flow, too, is of key importance. And, dare I mention the “profit” word?
We should have plenty more numbers to crunch when Deliveroo delivers first-half results on 11 August. Do I think I’m likely to buy when I see them? Probably not. I do think Deliveroo has a solid future ahead of it. But the trouble with companies like this, coming to market before they’re established with a record of profits, is that many of them fail.
And of the ones that succeed, they’re often overvalued in the early days and suffer a volatile first year or two. For me it’s maybe one for the future. I’ll keep watching.
