NEW BEARISH Plays
GrubHub Inc. - GRUB - close: 28.85 change: -0.34
Stop Loss: 30.55
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on August -- at $---.--
Listed on August 08, 2015
Time Frame: Exit PRIOR to earnings
Average Daily Volume = 2.2 million
New Positions: Yes, see below
It's been a rough ride for investors in GRUB over the last year and a half. The roller coaster ride in the stock has taken a bearish turn for the worse in spite of strong growth numbers.
The company held its IPO in April 2014. GRUB priced about 7 million shares at $26.00 each. The stock opened at $40.00. Four months ago shares peaked at $48.00 after a very volatile year of trading. Today there are over 83 million shares outstanding (77 million in the float) giving GRUB a market cap of $2.4 billion. Annual revenues over the last twelve months were $283 million.
GRUB is considered part of the technology sector. It's lumped in with the Internet stocks. According to the company, "GrubHub (GRUB) is one of the nation's largest portfolios of online and mobile takeout food ordering and delivery services. Connecting diners to more than 35,000 restaurants in 900 U.S. cities and London, the company's platforms and services strive to make takeout better through innovative restaurant technology, easy-to-use platforms and an improved delivery experience. The GrubHub portfolio of brands includes GrubHub, Seamless, AllMenus, MenuPages, Restaurants on the Run and DiningIn."
The bulls do have a case. GRUB is seeing strong growth. They reported their Q1 results on April 29th. Earnings were $0.12 per share, which beat estimates by a penny. Revenues were up +50% to $88.2 million, also above estimates. GRUB said their Q1 saw active diners rise +46% from a year ago to 5.6 million. Their number of "daily average grubs" rose +30% from a year ago to 234,700.
The strong growth continued in the second quarter. GRUB reported on July 28th and results were $0.17 per share. That beat estimates by four cents. Revenues were up +46.7% to $88 million, also above estimates. Active diners were up +42% from a year ago to 5.9 million. Daily average "grubs" were up +26% from a year ago to 220,000.
Matt Maloney, GRUB's CEO, commented on their results,
"We delivered significant year-over-year growth in the seasonally slower second quarter, driven by strong performance in all of our markets across the country."
Management then raised their 2015 revenue guidance from $346-361 million to $358-364 million. Wall Street was forecasting $360 million.
Unfortunately traders sold the news. The Q1 results ignited a sell-off in late April and GRUB continued to sink. There was a lot of volatility in the stock surrounding its Q2 results but investors have continued to sell GRUB in spite of its growth numbers.
The bears argue that GRUB is not only super expensive but it's facing growing competition. Uber is building up its UberEATS meal delivery service. Yelp is trying to build up its Eat24 service. That's on top of other competitors like BeyondMenu, Delivery.com, and MyPizza.com. Even Amazon.com is getting in the food delivery game with a service for Amazon Prime members in Manhattan.
The shorts seem to have momentum in their favor. The most recent data listed short interest at 18% of the 77.2 million share float. The point & figure chart is bearish and forecasting at $13.00 target. The $30.00 level was major support and the breakdown is technically very bearish. It's possible that the IPO price at $26.00 is potential support but I doubt it. Traders have been selling every rally. Tonight we are suggesting a trigger to launch at $28.60. More conservative traders may want to wait for a new low under $28.00 as an alternative entry point.
Trigger @ $28.60
- Suggested Positions -
Short GRUB stock @ $28.60
- (or for more adventurous traders, try this option) -
Buy the SEP $27.50 PUT (GRUB150918P27.5) current ask $1.25
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike