The past five months have been a brutal time for investors in online food-delivery business Deliveroo Holdings (LSE: ROO). The Deliveroo share price has crashed by more than three-fifths after peaking in August 2021. But after seemingly relentless falls, could ROO shares be due a rebound in 2022?
The Deliveroo share price’s roller-coaster
Deliveroo was founded in 2013 by Will Shu and Greg Orlowski. The online food-delivery company operates in countries including the UK, Netherlands, France, Belgium, Ireland and Italy. When it floated in London 10 months ago, its initial public offering (IPO) was a flop. The IPO price on 31 March 2021 was 390p, valuing the group at £7.6bn. Alas, the share price crashed as low as 271p, down 119p (-30.5%) within minutes. It then closed at 287.45p, down 102.55p (-26.3%).
Unfortunately, the decline in the share price continued, with the shares dividing to a low of 224.44p on 23 April 2021. But then ROO shares set off on a multi-month upward run, soaring into the summer. On 18 August last year, they peaked at a record high of 396.8p, before closing at 395p. What a comeback.
As summer turned to autumn and then winter, the share price cooled with the seasons. On October 4, it closed at 265.5p and then staged a brief comeback, rising to close at 314.2p on 26 November. Sadly, it’s all been downhill since for ROO stock as it has crashed by more than half (-53.2%) since November’s high. On Friday, the shares closed at 146.5p, valuing Deliveroo at just £2.7bn — around £5bn less than its peak valuation. Crikey.
Deliveroo shares fail to deliver
On 27 September, with the Deliveroo share price standing at 298p, I declined to buy ROO stock. I’m relieved I didn’t, because the shares have lost over half their value subsequently. On Friday, 28 January, the Deliveroo share price hit an all-time intra-day low of p, down a whopping 63.9% from its peak. After such a brutal price decline over five months, could this former growth stock have moved into value territory?
The first point I would make is that a stock that has already fallen 60% can go on to fall another 60%. In 35 years of investing, I’ve seen this happen time and again. When companies repeatedly disappoint the market, their shares can go into long-term decline. Then again, Deliveroo is a fast-growing business, so maybe its share price might one day catch up with the underlying business performance?
Deliveroo keeps on growing
In Deliveroo’s latest trading update on 20 January, the group revealed that gross transaction value (its preferred measure of customer spending) rose 70% year-on-year to £6.6bn. It delivered 40.4m meals and grocery orders in the UK and Ireland last year. The group now covers 77% of the UK population, up from 53% at end-2020. Meanwhile, Deliveroo confirmed that its gross margins would be in line with its target range of 7.5% to 7.75%. But this failed to lift the share price, which is down 14.8% since 20 January.
I don’t own Deliveroo shares, but would I buy at the current price of 146.5p? It’s a heavily loss-making business, but is growing fast. However, changes to employment law might upset the group’s reliance on self-employed gig workers. Even so, with the Deliveroo share price having fallen so far, I’d buy it as a speculative punt for my portfolio today!
Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc. 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.
