The Deliveroo (LSE:ROO) share price surged last Friday morning following its latest earnings update. Yet it seems not all investors were convinced by the recent performance. By the end of the trading day, the stock fell straight back down as selling volumes increased.
Seeing a stock rise significantly only to fall again within a single trading day is odd. Is there a reason to be concerned? Or is this a buying opportunity for my portfolio? Let’s take a closer look.
The volatile Deliveroo share price
Deliveroo published its second-quarter earnings report Friday morning. This appears to be the catalyst behind the initial surge because the performance results were actually quite impressive. At least, I think so.
Total platform orders grew by 88% to 78 million. Meanwhile, the gross transaction volume jumped by 76% compared to a year before reaching as high as £1,739m. Needless to say, this is some fairly substantial growth, especially since this was achieved during a time when pubs and restaurants have been reopening.
The overall performance beat both investor expectations and the guidance issued by the management team. And not by a small margin. For the last six months, the total gross transaction volume came in at £3,386m versus the issued range of £2,729m to £3,136m. So I’m not surprised to see the Deliveroo share price take off on the news.
But why did it then start falling in the afternoon?
Some uncertainty remains
Ever since Deliveroo entered the public market, there’s been a mixed response from investors. Most likely, this split in opinions originates from the high level of uncertainty surrounding the company. A good chunk of this evaporated when the UK courts ruled in favour of categorising Deliveroo riders as independent contractors rather than employees – a ruling that rival company Uber could not secure.
Yet despite this progress, uncertainty remains. As impressive as the recent performance has been, I think it needs to be taken with a pinch of salt. While it’s true that pubs and restaurants have been reopening, most remain at limited capacity while others struggle to attract patrons as consumers continue to try and minimise their exposure to Covid-19.
As a public company, Deliveroo has been active when takeaway has basically been the only option for those who don’t want to cook at home. That’s quite a favourable environment for the business, but it won’t last forever.
The bottom line
Lockdown restrictions in the UK are set to be lifted on 19 July, although this may change, depending on infection rates. Assuming that restrictions are removed, the third-quarter earnings report for Deliveroo will give show us how the company can perform in a post-pandemic environment.
If a slowdown in growth occurs, then the Deliveroo share price could take quite a tumble. Personally, I’m not keen on adding this uncertainty to my portfolio. Therefore, even though the recent drop could be a buying opportunity, it’s not one I’ll be taking advantage of.