3 Reasons Why You Should Buy Just Eat PLC

Just Eat (LSE: JE) operates the world’s largest online marketplace for takeaway food and is riding the e-commerce consumer revolution. 

Nevertheless, since coming to market at the beginning of this year, Just Eat has failed to impress. The company’s share price has languished below its IPO price as investors have started to doubt the company’s potential.

However, Just Eat has recently started to impress –its shares are up over 9% today at the time of writing — and there are three key reasons why you should think about getting in on the action. 

Cash is king 

In business cash is king, and cash is something Just Eat has plenty of. Specifically, the company raised around £96m from its IPO and this cash went straight to the balance sheet. What’s more, during the first half of the year the group generated nearly £9m in cash from operations, just over 100% of profit before tax. 

Overall, Just Eat reported a net cash balance of approximately £154m at the end of the first half, around 27p per share. With this much cash sloshing around, large dividend payouts could be on the cards. 

Explosive growth 

Aside from cash, there’s no doubt that Just Eat is one of the fastest-growing companies out there. The company’s rate of growth is just staggering.

For example, management revealed within the company’s interim management statement, for the six months ended 30 June 2014, that revenue had surged higher by 58% compared to the year ago period. Further, underlying EBITDA had exploded 591%, to £15.9m during the period. Additionally, earnings per share jumped 200% to 1.2p for the first half of the year — this growth should also boost Just Eat’s hefty free cash flow and cash balance. 

And City analysts expect this growth to continue. Indeed, earnings per share growth of 114% is expected for this year, followed by growth of 258% next year. 

Unfortunately, this kind of growth demands a premium valuation. Just Eat is currently trading at a forward P/E of 180, based on earnings predicted for full-year 2014. City analysts currently predict that the company will earn 1.5p per share for 2014.

Revising higher

However, it is reasonable to suggest that these forecasts could be raised significantly higher. Indeed, Just Eat reported earnings per share of 1.2p for the first half of 2014, as shown above, indicating full-year earnings of 2.4p per share.

This would put the company on a forward P/E of 122, which still seems expensive, although with a growth rate in excess of 100% per annum, Just Eat could be worth its premium valuation. 

Still, for those who believe that Just Eat is too expensive, there are other opportunities out there. You see the key when searching for growth stocks is looking under the radar. You want to get on board while the company is still an unknown quantity, that way you won’t need to pay a premium in order to benefit from the company’s growth.