In a sign of how much market sentiment has turned against growth and technology stocks, Deliveroo Holdings PLC (LON: ROO) shares crashed on the first day of listing.
The UK food delivery giant’s initial public offering (IPO) was much anticipated as one of Europe’s biggest this year, with shares snapped up for £3.90.
But when they started trading on the London exchange overnight, they immediately fell 30%.
The stock recovered slightly to end a wild first day on £2.87, which is still more than 26% down on the IPO price.
Investors boycotted Deliveroo’s IPO
Food delivery cyclists with the familiar aqua warmer bag on their backs have become ubiquitous in both the UK and Australia.
But recent concerns over labour relations scared away some investors during Deliveroo’s IPO, despite its famous brand name.
“Several influential institutional investors declined to participate in this IPO. They included Aviva, Legal & General, and Aberdeen Standard. They expressed concern over Deliveroo’s employment practices,” said The Motley Fool UK’s Cliff D’Arcy.
“They also disliked dual-class shares that hand extra votes to co-founder Will Shu for a further three years. Hence, they declined to invest in the eight-year-old business.”
Deliveroo did not reply to The Motley Fool’s request for comment.
Even at the IPO price of £3.90, some experts already thought Deliveroo was overvalued for a business that’s still incurring huge losses.
Hargreaves Lansdown analyst Sophie Lund-Yates compared Deliveroo’s valuation to the owner of Menulog, Just Eat Takeaway.com NV.
“A market cap of £7.6 billion means the company’s worth 6.4 times last year’s revenue, which is some way above rival Just Eat’s 4.8 times.”
‘Terrible economics’: why Deliveroo is not a tech company
Both D’Arcy and Royston Wild of The Motley Fool UK recommended staying away from Deliveroo shares.
That’s despite Wild’s bullish outlook on the British takeaway food sector.
“I fear that the Deliveroo share price still looks too expensive despite today’s fall,” he said.
“The firm operates in a highly-competitive area, and one in which the issue over workers rights is becoming an ever-hotter potato, which makes this particular UK share too risky in my opinion.”
D’Arcy, as a value investor, disagrees with Deliveroo’s self-characterisation as a technology business.
“I see an intermediary or distributor in an ultra-competitive market. It may have a snazzy app and website, but the hard work is done by roughly 100,000 ‘independent contractors’,” he said.
“If Deliveroo had to pay the minimum wage to those delivery drivers as employees, I struggle to see how it would overcome the terrible unit economics of home delivery.”
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of February 15th 2021
More reading
- ASX 200 boom as Joe Biden unveils massive infrastructure, tax package?
- Here’s why the Identitii (ASX:ID8) share price is surging today
- Why the CSL (ASX:CSL) share price is going around in circles
- Why the SG Fleet (ASX:SGF) share price is one to watch next week
- Amazon is doubling down on this multibillion-dollar opportunity
Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
The post Deliveroo shares flop on market debut appeared first on The Motley Fool Australia.
from The Motley Fool Australia https://ift.tt/2ObsdqR
Leave a Reply