Get All Access for $5/mo

DoorDash vs. Grubhub: Which Stock Is a Better Buy? A closer look at the two food delivery giants.

By Aditya Raghunath

This story originally appeared on StockNews

via Stock News

The COVID-19 pandemic has kept people at home for much of the last nine months. As a result, restaurants have been hard hit by a lack of in-door dining traffic.

However, many restaurants have been kept afloat by the increase in delivery orders. This has been made possible by third party delivery services.

So today, we are going to compare two food delivery giants- DoorDash (DASH - Get Rating) and Grubhub (GRUB - Get Rating) – to see which stock is a better investment right now.

DoorDash has gained since IPO

DoorDash is new to the public markets, as it just went public last month. DoorDash priced its IPO at $102 per share and its stock is currently trading about 50% higher. It leads the U.S. food delivery space with a market share of 50%. While most other delivery companies focused on gaining traction in big cities, DoorDash laid eyes on establishing a presence in suburban areas where the order size is larger.

In Q2 of 2020, DoorDash reported its first-ever profitable quarter as its revenue rose by 214% and monthly subscribers tripled. It benefitted from a pandemic-induced demand and it also reduced spending on marketing, driving the bottom-line higher.

DoorDash recently reported it bagged a deal with supermarket chain Albertsons Companies (ACI) that has over 2,700 stores in the U.S. Albertsons has 18 different chains and it will use DoorDash for its growing home delivery market.

DoorDash has over a million drivers, around 400,000 merchants, and 18 million customers. In the first three quarters of 2020, DoorDash sales rose by almost 200% year-over-year to $1.9 billion. However, its cost of revenue stood at $900 million, indicating a gross margin of 53%. DoorDash's gross margin rose from 40% in the prior-year period.

Its loss from operations also fell to $131 million from $479 million in this period. However, it remains to be seen if DoorDash will be able to improve its profit margins in a post COVID world as well.

DoorDash has a market cap of $48.5 billion and is trading at a forward price to 2021 sales ratio of 13.1x which seems lofty. Analysts expect the company to report an adjusted profit in 2021, indicating a price to earnings ratio of over 1,000x.

Grubhub is expected to grow sales by 37.5 percent

Wall Street expects Grubhub to grow sales by 37.5% year-over-year to $1.8 billion in 2020 and by 18% to $2.13 billion in 2021. However, investors should note that since 2017, Grubhub's expenses are rising at a higher rate compared to the revenue which indicates no operating leverage.

While Grubhub's operating losses were $6 million in 2019, it expanded to a whopping $112 million in the first three quarters of 2020. Analysts expect Grubhub's loss per share of $0.12 in 2020, but also forecast it to report earnings of $0.49 in 2021.

In Q3, Grubhub's customer orders were up 46% year-over-year and with COVID-19 cases rising in the U.S., this figure is set to remain high in the near-term.

In June 2020, Just Eat Takeaway agreed to acquire 100% of Grubhub in an all-stock transaction valuing the deal at $7.3 billion. According to the terms of this deal, Grubhub stock owners would receive 0.671 shares of Just Eat Takeaway for each share of Grubhub.

The verdict

According to its prospectus filed pre-IPO, DASH maintains about 50% percent of the U.S. delivery market by total sales, while GRUB only has 16%.

Though GRUB is trading at a lower valuation compared to DASH, DASH's market leadership and rising profit margins make it a better investment right now.

And Wall Street agrees:

The average 1-year price target of the 16 Wall Street analysts covering DASH is $160.92 with a high forecast of $200.00 and a low forecast of $135.00. DASH is currently trading at about $156.

The average 1-year price target of the 4 Wall Street analysts covering GRUB is $73.33 with a high forecast of $80.00 and a low forecast of $65.00. GRUB is currently trading at about $81.50.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Growing a Business

Saying 'Yes' to Everything Leads to Failure — Here's How to Avoid the Trap of Overcommitment

Discussing the dangers of overcommitment and practical strategies to master the art of saying "no."

How to Go Green

Going Green Can Save You Money and Attract Top Talent — 3 Essential Ways to Become More Eco-Friendly

I've always believed sustainability is all about finding solutions with a meaningful long-term impact and how we can work together towards a better tomorrow. Here are three essential ways your SMB can integrate sustainability throughout the business.

Business News

How to Start Your Dream Business This Weekend, According to a Tech CEO Worth $36 Million

He started his now 14-year-old company in one weekend for $60 — it made $300,000 the first year, and $3 million the second.

Business News

Why Does Taylor Swift Keep Stopping Her Shows Mid-Song? It's Actually a Great Lesson in Leadership.

Taylor Swift has paused nearly half of her shows while on the European leg of her Eras tour, and the reason is something leaders can learn from.

Science & Technology

This Influencer Has Nearly 150,000 Instagram Followers and Makes Over $10,000 a Month. There's Just One Catch — She's Not Real.

Aitana López has over 149,000 Instagram followers and brands love her. Is she the future of social media marketing?