GrubHub (GRUB) has seen its stock fly in the last couple of weeks.
The company, which takes food delivery orders via its mobile app and then routes it to a local restaurant who delivers it to you, is a fantastically smart service.
And the IPO has fared well despite the choppy markets of the past couple of months. The stock traded up to $30 from its IPO price in the low $20s. It then made a run to $40 before pulling back.
Two weeks ago, you could buy the stock for $30, but as of yesterday it had gotten back to almost $40.
It's come too far too fast, and is due for a pullback. We've started to see it already this morning as the stock has sank over 4% on the day.
Even prior to the stock's jump, it was expensive, trading at between 16-17x trailing 12 months of sales.
The business is a combination of the traditional GrubHub business and Seamless. It had about $160 million in revenues for the last year when it launched its IPO. But its total addressable market is still massive.
GrubHub delivered meals -- or gross sales last year -- worth over $1 billion to restaurants. Some estimates put the total food delivery sales in the US last year at over $60 billion. So GrubHub -- the biggest national mobile player in the business -- still has a lot of upside potential.
It can now also use its currency to acquire smaller local or regional players who are in the mobile delivery space. The leader will become more of a leader over time, with good pricing power to boot.
At the moment, GrubHub charges its restaurants a 13% commission for generating the takeout order. The restaurants are happy to pay this as it is business they wouldn't get otherwise.
That's why I'm not scared off by GrubHub's seemingly high valuation. As long as it continues to grow into it with sustained high year-on-year growth, the current stock price could be very small compared to what it could be worth.
Yet, on the short-term basis, I still think the stock has become too pricey right here near to $40. I would love to own it once it subsides back down to $30 again in a few weeks time.