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Just Eat stock is down 55% in a year! Here’s why I’d buy it

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Arrow descending on a graph portraying stock market crash
Arrow descending on a graph portraying stock market crash

The FTSE 100 index made decent gains in 2021. And yesterday, even managed to close above 7,500 for the first time since the pandemic started. But what is true for the index in general, is not true for all listed companies. Take delivery app Just Eat (LSE: JET). The stock has taken a real beating in the past year. Its share price was down by almost 55% in a year at the last close!

Update pleases investors

So, it caught my attention when it rose 3.6% yesterday. This followed its positive trading update. For the full year 2021, its gross transaction value (GTV), which is the total value of orders placed on the platform, including tips and taxes, grew by 31% from the year before. It also said that losses will start reducing from next year. This is one step forward towards making profits, I reckon. But so far, the company is focused on growing market share.

That investors view the trading update positively suggests to me that better times could be in store for the long-suffering stock. It did quite well in 2020 when lockdowns started. But as the vaccine programme started yielding results, its fortunes took a turn for the worse. And it has pretty much been falling ever since. Now however, I feel it could have fallen too far.

Why I like the stock

I have long held the belief that this is a stock to buy for the long term. The reason is simple. As e-commerce grows even more over time, we are likely to order more from food delivery apps. The increase in popularity of all online commerce solutions has been evident during the pandemic. And at least some of this conversion to online spending might have be permanent, improving online companies’ prospects for the long term.

It helps that the company is geographically spread out, allowing it to reach markets with high growth potential. Also, like its peer Deliveroo, the company has diversified into providing grocery deliveries, for instance, for ASDA in the UK and other supermarkets elsewhere. I also like that it has been able to manage potential labour issues well, something Deliveroo has struggled with.

My assessment

There is, of course, the challenge that it might not be able to turn in profits quickly enough, which could test investors’ patience. Also, its revenue growth could slow down this year, now that we can eat out as often as we like. But I see this as an investment in a high-growth industry as opposed to an established one.

It is essential for it to invest to ensure a big enough market share right now, even at the cost of profits. If it reined-in investments just to boost profits, that could undermine its market position. The stock has been on my portfolio wishlist for a while, and now that it is at a low point, I think this is my opportunity to buy it.

The post Just Eat stock is down 55% in a year! Here’s why I’d buy it appeared first on The Motley Fool UK.

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Manika Premsingh 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.

Motley Fool UK 2022

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