GrubHub (NYSE: GRUB)’s Huge Q2 Growth

The rule of thumb for investing – whether it be a company that already has an established space in the market or one that just went public – is that it should display strong fundamental performances. GrubHub (NYSE: GRUB) is one of those companies.

The online and mobile food ordering service company posted large gains in its latest earnings and sales. In the second quarter the company delivered profits of $0.03 a share. This is a 50 percent increase from one year ago, however, it still missed expectations by a huge margin. On the other hand, GrubHub’s sales beat expectations, rising 48 percent to a record high of $60 million.

GrubHub collects a fee for each order from the 30,000 restaurants that are affiliated with the company. The company is based in Chicago, but has operations all over the United States and London.

The number of active users jumped by 51 percent to 4.19 million in the second quarter. The number of average transactions processed per day increased by 34 percent to 174,500.

Last year, the company’s net sales reached $170.1 million, which was a 43 percent increase from 2012’s figure of $118.9 million. For this year, the analysts expect the company to hit $239.93 million in revenue. As for adjusted earnings before interest depreciation and amortization, the number increased from $10.4 million in 2012 to $39.7 million in 2013.

The company, which released its initial public offering on April 4^th of this year, has seen large swings in its stock. The stock reached a 39.22 buy point from its initial base on July 29^th. However, the stock reversed later that day, and fell 8% past the 39.22 mark a few days after. Despite that unsuccessful breakout, the company’s stock has more or less bounced back and is recovering in recent trading sessions near the 35 mark. Already, the stock has recovered back to its former buy point.

While another breakout through the 39.22 point would signif another acceptable entry, it is generally agreed upon that investors should avoid new buys when the market is in a correction stage. A new base could give it another point to buy, but that would take more time.

Five competitors that have raised an aggregate of over $100 million include Sprig, Munchery, DoorDash, Postmates, and Spoonrocket within the past six months. Their growth hasn’t helped them to overcome Grubhub and Seamless alliance and merger last year.

Analysts are optimisic about Grubhub’s future. Out of 6 analysts, 1 analyst gives a hold rating, and 5 give a buy rating. The consensus price target of $38.40 has been exceeded. As a result, Citigroup Inc, Canaccord Genuity, Raymond James have all revised their price target up based on higher Q2 growth.

Citigroup raised their price target from $40.00 to $41.00.

Caanaccord Genuity, a Canadian wealth management firm following the company, has boosted their price target from $40.00 to $42.00.

Raymond James has boosted their price target from $36.00 to $37.00.

The ownership of GrubHub funds has increased to 105 at the end of the second quarter. This is a huge increase from the 4 owners in just the first quarter. One of these new funders who began a position in the second quarter was T. Rowe Price New Horizons, a leading growth mutual fund.

On a typical day, GrubHub trades more than 400,000 shares on average. This is typically considered to be good liquidity. However, the average dollar volume of GrubHub leans towards the light side. In most cases, investors would be better off sticking to stocks with average dollar volumes of at least $20 million.