Shares of British online food delivery company Deliveroo (LSE: ROO) are in the green today after performing brilliantly since its initial public offering. The troubled U.K.-based food delivery company received a vote of confidence when Delivery Hero SE acquired a 5.1% stake in the company.

Deliveroo – Technical Analysis

The financial statement from Deliveroo indicates a market cap of £5.883 billion and total assets worth £608.7 million. Revenue for 2020 was at £1.19 billion with a profit margin is -19.01%, up from 2019’s £771.80 million. As of August 10th (09:37 UTC+1), ROO shares are at £359.4.

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Oscillators for Deliveroo such as Stochastic RSI Fast (3, 3, 14, 14)(82.0), Williams Percent Range (14)(−1.2), Bull Bear Power(38.8) and Ultimate Oscillator (7, 14, 28)(57.5) are pointing towards a neutral action. On the other hand, moving averages such as Volume Weighted Moving Average (20)(319.1) and Hull Moving Average (9)(341.9) are pointing towards a buy action.

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Recent Developments

The Acquisition by Delivery Hero involved acquiring the shares at an average price of about 270 pence since April. According to numerous calculations, this may have amounted to £235 million, aiming Delivery Hero a top ten shareholder in Deliveroo. As a result of this news, ROO shares increased by 5.9% to reach 344.30 pence yesterday after gaining almost 11%. This made it the biggest gain in Deliveroo’s history since its IPO in March.

Many analysts agree that the surge in Deliveroo’s share price was mainly due to the Delivery Hero SE acquisition. It’s worth pointing out that Berlin-based Delivery Hero SE operates in over 40 countries in Europe, Asia, the Middle. With a market cap that is four times that of Deliveroo, Delivery Hero is a large player in the industry and can be attributed to the surge in Deliveroo’s share price yesterday. Food delivery service firms such as Deliveroo have performed well during the pandemic, which also explains why it decided to list its shares earlier this year.

As the food delivery sector is entering a consolidation period, Delivery Hero could just be testing the waters with such a small investment. However, a future full-blown takeover should not be far off. Investors aren’t ignoring this possibility, especially after yesterday’s performance.

Should You Buy ROO Shares?

Investors can look at the company’s positive trading update where it was reported that orders grew by 88% year on year to reach 78 million in 2021’s second quarter. What’s more interesting about the above figures is that they were recorded when the UK was coming out of lockdown. This suggests that consumers continue to use the platform even after the economy has opened up. All of these are signs of healthy future growth. The company’s performance throughout the pandemic has beaten all of Wall street’s predictions.

There’s still a risk that orders could decrease in the third and fourth quarters, but the fact that consumers haven’t exited the platform is an indication. While forecasts indicate that the company will report losses in the next few years, it’s still challenging to evaluate the business on an earnings basis. Deliveroo may find it difficult to achieve a higher valuation, considering the cut-throat nature of the meal delivery sector. With some of its peers such as Just Eat spending hundreds of millions towards achieving customer growth, Deliveroo has to overcome significant challenges to remain competitive. Thus, even though investors can be encouraged by its recent progress, the share price still looks a bit expensive compared to its competitors.

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About Prodosh Kundu PRO INVESTOR

Prodosh Kundu is the Founder & CEO of SERP Consultancy, a prominent Digital Marketing Company in Kolkata, India. Starting his career in 2004, he is a Google AdWords certified internet marketing professional, SEO consultant, strategist, and analyst. With his strong understanding of financial market regulations, stocks, blockchain technology, cryptocurrency, & forex, Prodosh has written thousands of articles, blogs, broker reviews, guides, and offered critical analysis & recommendations on investment opportunities!