It looks as though the ongoing love affair between investors and GRUB is set to continue with a sharp spike in the share price. The share price has nearly doubled since the start of the year, is there any more upside left? Jul-25-18 GrubHub tops estimates as more customers order online, stock hits record Reuters +25.47% Grubhub acquires mobile restaurant ordering startup for $390M American City Business Journals Edited Transcript of GRUB earnings conference call or presentation 27-Apr-17 2:00pm GMT Thomson Reuters StreetEvents Why Shares of Grubhub Are Surging Today Motley Fool
It looks as though this short-term spike in the share price could evaporate quite quickly with consolidation at or around the $125 mark. It is interesting to see the company is acquisitive and looking to grow. I would wait until the short term traders have sold up and moved on to the next share, which will probably see the share price a little lower down. One to buy and took away if the growth story holds up.
There was a short term correction with this one which was the time to buy. However, the shares are back in growth mode! The beauty of a strong share price for this type of acquisitive company is that they can issues new paper to buy companies, taking advantage of the strong share price. Then, assuming the acquisitions are earnings enhancing from day one, they will grow profits, keeping analysts happy thereby strengthening the share price in the future. All good at the moment Still one to buy and tuck away I think. The market in which they operate is huge and there will be takeover opportunites aplenty in the future.
This is a stereotypical growth company using high valued paper to acquire competitors which means that all acquisitions are immediately earnings enhancing. As momentum continues to build, the share price continues to push ahead and the highly rated paper can be used time and time again to take out competitors. As long as the company is growing there should be no problems but when growth begins to stall that is the time to bail out.
The company's short to medium strategy of using paper to fund acquisitions is brilliant! Each acquisition is earnings enhancing from day one because of the high company valuation. This uptrend could last for many months yet - it will only start to fall apart at the first signs that the company is over paying and cost savings/profits are not what analysts expected. Human nature ensures the shares will get over bought and then ping back, probably to an over sold position.
One note of warning - in troubled markets (which we could see as a consequence of political issues and the China spat) it is the highly rated paper which is often hit first. Companies like GRUB are highly leveraged to economic growth so will suffer more than most if it does slow.
