The Deliveroo (LSE:ROO) share price has been one of the top investing stories so far this year. The company has had a lot of attention following its underwhelming public debut. In fact, the UK food delivery service stock dropped by nearly 30% within the first month of trading.
But this week, the Deliveroo share price started climbing from 228p all the way to nearly 265p today. That’s a 16% increase in a relatively short space of time. What happened? And should I be adding this stock to my growth portfolio?
The rising Deliveroo share price
On April 27th, Deliveroo announced a new two-year partnership with the UK supermarket Waitrose. This deal began in September last year, where Deliveroo riders could deliver groceries to online Waitrose shoppers. What started out as 5 stores supporting this delivery method quickly expanded to 40 within the trial period. This delivery option proved to be widely popular. Therefore the supermarket giant is expanding this relationship to include an additional 110 stores, bringing the total to 150.
This means Deliveroo riders can now begin delivering groceries to around 13 million people living near one of these supermarkets, as well as drastically cutting delivery times down to as low as 20 minutes.
While the whole Watroise catalogue won’t be available for online shoppers ordering through the Deliveroo app, they will have access to around 750 – 1000 products. Needless to say, this is fantastic news for both companies. And so, I’m not surprised that the Deliveroo share price has surged on the announcement.
Looking ahead
A few weeks before this announcement, the company achieved its fourth consecutive quarter of accelerated growth. Total orders soared by 114% in the three-month period from 33 million to 71 million. And the gross transaction volume increased by 130%, reaching £1.65bn.
But there is some uncertainty whether this accelerated growth can be maintained once the lockdown restrictions are lifted. After all, it has significantly benefitted from everyone having to rely on its food delivery services. Having said that, this latest deal with Watroise certainly improves the odds, in my opinion. And given that the Deliveroo share price is climbing, it would seem investors agree.
Another source of uncertainty stems from the future of Deliveroo’s labour practices. Suppose its riders become classified as employees rather than self-employed freelancers, as what happened with Uber. In that case, the company may begin to incur some very costly expenses that will prolong its journey to profitability.
The bottom line
Deliveroo continues to perform admirably as a business, regardless of how its share price has behaved since its IPO. However, as promising as this latest deal is, there are still many unknowns regarding how it will perform in a post-Covid-19 environment. And so, the stock is staying on my watch list for now.
Instead, I much rather invest in this…
Discover market-beating stock ideas today. Join our Premium investing service to get instant access to analyst opinions, in-depth research, our Moonshot Opportunities, and more. Learn More
Zaven Boyrazian does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. The Money Cog have published an analysis of Deliveroo. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.
