The Marley Spoon share price is up 588% in 2020. Will it keep delivering?

Despite the coronavirus pandemic wreaking havoc on financial markets, the Marley Spoon AG (ASX: MMM) share price is up a staggering 588% for the year. The company has been a key beneficiary of changing consumer behaviours during the lockdown period.

Here’s a closer look at why the Marley Spoon share price is surging, and whether it can be sustained.  

Why is the Marley Spoon share price surging?

Marley Spoon is a subscription-based meal-kit provider that has capitalised on changing consumer behaviour as a result of COVID-19. With many shoppers looking to bypass the chaos and panic buying at local supermarkets, convenience services like Marley Spoon have thrived during the coronavirus lockdown period. From the comfort and safety at home, Marley Spoon allows consumers to order fresh ingredients and meal kits that are delivered with step-by-step recipes.

The company currently operates in 3 primary regions: Australia, the United States and Europe. During the coronavirus pandemic, Marley Spoon experienced unprecedented demand for its services, reporting a 46% increase in revenue for the first quarter. The company reported that 7.5 million meals were delivered in the first quarter of 2020, resulting in Marley Spoon’s first ever positive cash flow.

What is the outlook for Marley Spoon?

The coronavirus pandemic has actually given Marley Spoon a favourable tailwind for future growth. In an investor presentation in May, the company reported lower customer acquisition costs due to inbound customer interest and lower advertising rates. Marley Spoon also reported that year-on-year order growth across all regions increased, indicating strong retention and customer loyalty.

As a result, the company predicts that its path to profitability will be accelerated and expects to achieve positive operating earnings before interest, tax, depreciation and amortisation by the second quarter of 2020. Marley Spoon has already completed a $16.6 million capital raising in order to strengthen its balance sheet and fund continued global expansion.

Is it too late to buy shares in Marley Spoon?

The Marley Spoon share price has had an almost vertical ascendance. Personally, I can’t advocate buying shares in the company at the moment after such a fast rally. Although I do believe that the company will benefit from consumer behaviour following the pandemic, there are other alternatives to capitalise on this trend if Marley Spoon doesn’t fit your risk profile.

Woolworths Group Ltd (ASX: WOW) actually has a 9% stake in Marley Spoon after the supermarket giant invested $30 million into the company via a debt and equity transaction in 2019. Therefore, investors looking for a more established company, whilst also having exposure to changing consumer behaviours could see Woolworths as a great alternative.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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