These are uncertain days, even for the best UK shares. Yesterday, for instance, the FTSE 100 index closed at sub-7,300 levels and it is even lower in early trading today. In this environment, two falling stocks in particular have caught my attention. The first is FTSE 100 hygiene and pest control services provider Rentokil Initial (LSE: RTO) and the other is the food delivery biggie Just Eat Takeaway (LSE: JET).
Rentokil Initial’s strong results
Both stocks fell after they released results. So I need to try to figure out whether they indeed deserved the hammering they just took or if it just happens to be a temporary market overreaction that could balance itself out over time. First, let us look at Rentokil Initial. Frankly, there was little to dislike in its results, I feel. Its revenues were up by 5.5% in 2021 compared to the year before, its pre-tax profit was up a huge 41.5% and its dividends rose too. It also has a positive outlook for 2022.
Among the best UK shares or not?
It is pricey, though. Considering the latest earnings numbers, its price-to-earnings ratio is 35 times, compared to around 16 times for the FTSE 100 overall. From what I can see, there seems to be a rotation away from UK shares that performed quite well during the pandemic. It has been going on for a while, and it continues even now. The company’s share price has already ‘corrected’ quite a bit over the past year, offering almost no gains to investors. I still think that it is a buy for the long term, but also that if its price can dip more, it would be a better idea to buy it then. If I had not already bought it, I would watch it for now and buy on the dip.
Just Eat Takeaway’s increasing revenues
Next, Just Eat Takeaway saw a brutal drop in its share price of almost 13% yesterday after releasing its 2021 results. On the face of it, the numbers here also looked good. Revenue was up by 33% from the year before. And while it is still loss-making, according to CEO Jitse Groen, it is “now rapidly progressing towards profitability”.
Why is its share price falling?
Yet the company’s share price has been tumbling fast. Over the past year, it has lost over half its value. But it was falling even before that, since the stock market rally started as the first vaccines were developed. And that is quite a while. Also, investors are probably questioning whether its acquisition of US-based Grubhub can really reap dividends. North America is its slowest-growing market right now, though to be fair, it is also the biggest.
What I’d do
I have long liked Just Eat Takeaway. Much like Rentokil Initial, I do not think it a falling knife. Quite the contrary. I expect its share price to start rising as soon as the first profits start trickling in. And from the looks of it, that could be soon. But until such time, its share price could drop more. I would be happy to buy it but at lower levels than today. In the meantime, I am focusing on these FTSE 100 shares.
Manika Premsingh owns Evraz, Polymetal International and Rentokil Initial. The Motley Fool UK has recommended Just Eat Takeaway.com 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.
