Why Are Deliveroo Shares Cheap?

VIDEO: People are still using delivery apps even after lockdown, but competition is stiff

James Gard 15 November, 2021 | 9:13AM
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James Gard: Each week we look at one stock that is cheap or expensive and why. This week it’s the turn of Deliveroo, which has a four star rating from Morningstar.

There was great excitement when the food delivery app floated this spring, but the IPO caused some serious indigestion for retail investors. The shares are still around way below their offer price of 390p, but Morningstar analyst Ioannis Pontikis thinks the shares have a fair value of 350p.

So what would make investors hungry for more? Updates from Deliveroo and others suggest that consumers are still using food delivery apps even after the lockdown. And the industry still has some room to grow even after the boost to sales since the pandemic started .Deliveroo has a strong brand with hefty market share in the UK, Pontikis says, and could make an attractive target for a buyer wanting to make waves in Europe. Deliveroo has just signed a deal with Amazon Prime, which he says could be a huge opportunity for Deliveroo if handled well. And the number of customers using Deliveroo Plus, its monthly subscription membership, are rising.

Still, there is intense competition from the likes of Just Eat Takeaway and the Deliveroo has yet to make a profit as a public company.

For Morningstar, I’m James Gard

 

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James Gard  is content editor for Morningstar.co.uk