Stock analysis: The pros and cons of investing in Grubhub

Online food delivery company Grubhub Inc. (NYSE: GRUB) is going through a difficult phase, with margins constantly coming under pressure due to competition from the likes of Uber Eats (UBER), which is planning a major US expansion after closing down operations in certain Asian countries. Grubhub’s financial performance in recent quarters has been reflective of the market headwinds.

Currently, efforts are on to tide over the slump and the company is betting on the Grubhub Ultimate hardware/software solution to get back on track, though the move is unlikely to have any effect on financial performance in the near term. Some of the growth initiatives, such as the addition of independent restaurants to the platform, demand certain basic changes to the business model.

Revival Plan

The key to achieving the goals will be to expand market share, competing with other players like DoorDash and Uber. As far as shareholders are concerned, the good news is that the stock is shifting to recovery mode. The relatively low price, which is sharply below the record highs seen two years ago, should be an encouragement to those planning to invest.

Wait & Watch

However, the prevailing uncertainty over Grubhub’s future calls for caution, especially in the wake of unconfirmed reports that the company might be looking for buyers to sell its assets. Experts are of the view that it is not the right time to buy and suggest that those who already own the stock may hold it.

Related: GrubHub Q4 2019 Earnings Conference Call Transcript

The management’s revival strategy, with focus on adding more restaurants to retain customers, needs a long-term execution plan. So, it will take some time before the efforts yield the desired results. Initial estimates indicate that 2020 will be a challenging year for the company when market headwinds like competition are expected to weigh on earnings and revenues.

Q4 Outcome

In the fourth quarter, Grubhub slipped to a loss of $0.05 per share, which also missed the estimates. Revenues, meanwhile, rose to $341.3 million aided by a double-digit increase in the number of active diners.

A few months ago, Grubhub’s shares slipped to the lowest level in two-and-half years, following its unimpressive quarterly results. After that, the stock almost fully recovered and gained about 15% since the beginning of the year.

Listen to publicly listed companies’ earnings conference calls along with the edited closed caption text