The Deliveroo (LSE:ROO) share price is up 50% over the past three months. This is an impressive gain considering the flop that it had during the IPO earlier this year. So with investor sentiment clearly changing towards the company, how high could shares go? With the IPO share price at 390p and shares currently at 375p, we think that the 400p barrier could be seen in the near future. Here’s why.

Positive half-year results

Earlier this month, the half-year results came out for the business. These were closely scrutinized because as a public company, more transparency has to be given. So last year, it was harder to track key metrics about the finances.

Results showed that orders were at 149m, up 100% year on year. Further, one figure used a lot is the gross transaction value (GTV). This shows the monetary value from each user. This came up 101% year on year. Such strong performance at an absolute level is appealing and helped lift the Deliveroo share price.

I think this paints a positive outlook going forward as it helps to show that the growth isn’t just fuelled from the pandemic. Although some of H1 was in lockdown, restrictions were being lifted from the spring. So it’s clear that the customers gained during the pandemic aren’t stopping ordering. I think this is going to be key in order to support further growth for the business.

A balanced view of the Deliveroo share price

There are still some risks to consider before buying up Deliveroo shares. Firstly, it isn’t that long ago from the bad press regarding the IPO. Big institutional investors such as Aberdeen and Aviva pulled out. Clearly, they saw something big enough to not warrant jumping in at the beginning.

Further, I shouldn’t forget that the business is still loss-making. Loss before tax for H1 was £104.8M. The loss is getting smaller versus 2020, but it’s still a hurdle that needs to be jumped over before the Deliveroo share price can make meaningful gains. After all, there is only so much of a premium investors can put on a loss-making growth stock before it quickly becomes overvalued. Valuation is also subjective, as seen with the meme stocks rally.

At this stage though, I don’t think 400p looks too much of a stretch. The underwriters at the investment banks clearly thought 390p was a fair price only a few months ago. So I think that this mark doesn’t command much of a premium given the improved financials.

The key gauge will be the Q3 trading update. At the moment, GTV annual growth was upgraded to 50-60%. If this can be maintained into the autumn (and without any Covid-19 restrictions), then the Deliveroo share price could easily make a move past 400p.

Leave a Reply