After a disastrous initial public offering (IPO) for Deliveroo (LSE:ROO) back in March, is the current share price an opportunity or one to avoid for my portfolio? Let’s take a look.
Deliveroo share price journey
The Deliveroo IPO was advised and backed by some of the premier law firms and banks in the business. There was a certain amount of hype around it. The IPO itself ended up going down like a lead balloon.
Deliveroo floated on the London Stock Exchange (LSE) with a value of £7.6bn at 390p per share. When the first day of trading ended, shares closed at 287p per share. Approximately a month later on 26 April, shares had reached their lowest point of 228p per share. This is a 41% decrease.
The past month has seen the Deliveroo share price experience a small resurgence. From 251p per share on 23 June, I would currently pay 331p per share. This 31% increase is positive but what has caused it? Can it keep its momentum going with half-year results due next month?
Flash in the pan or sustainable business model?
Deliveroo released a Q2 trading update in early July. Although it was overly positive, it didn’t actually boost shares by that much. The update confirmed that gross transaction value (GTV) has increased to £1,739m. This is a 76% year-on-year increase compared to the same period last year. In addition to this, orders increased by close to 90% in Q2.
These positive results led to Deliveroo announcing that full-year guidance had increased, which is a good sign of confidence.
I think the Deliveroo share price has been boosted by two things. First, the results reported recently show that Deliveroo’s orders are higher than in the pandemic period. In the pandemic period under a full lockdown, many resorted to takeaways more often. I think this is a sign that Deliveroo does have a sustainable business model as people are still ordering and more often despite being able to go out to eat once more.
In addition to this, the Deliveroo share price could be boosted again in the near future. The trading report also referenced the potential of acquisitions too. Specifically, it said, “sees an opportunity to make further discretionary investments into growth opportunities in the second half.” Acquisitions represent growth and expansion plans, which are a good sign in my eyes.
What I’m doing now
Deliveroo is one of a number of stocks that have benefited from the gig economy boom. A gig economy is a labour market characterised by the widespread presence of freelance work as opposed to more permanent roles.
I think the Deliveroo share price rise could continue. However, I would not buy shares just yet. I am more interested in reading its half-year report next month and learning a bit more. I will keep a keen eye on developments but for now, I wouldn’t invest in Deliveroo for my portfolio.