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Investors feast on Just Eat one year on from IPO

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Floated at 260p, the company’s share price slid back sharply after the launch touching 195p on concerns that the company’s business model made it vulnerable to copycat competition in a market place, which is likely to remain fierce. 

In 2013 the company saw revenues jump 60 per cent to £96.8m, with operating profits of £6.8m. Full year numbers for 2014 look likely to increase further with income set to rise over 52 per cent to £152.5m.

The company has certainly been busy in the past 12 months, expanding its business in Latin America. In addition to raising its stake in Brazil’s leading takeaway group iFood, in February the company bought Mexico’s leading takeaway group SinDelantal, as it continued to expand its presence in overseas markets.

We also saw the company increase its stake in French-based Alloresto in July last year. Currently, Just Eat operates all over Europe as well as in Canada, Scandinavia and India, and investors certainly appear bullish about its ability to grow its business, particularly given how easy it is to order by way of an on-line app.

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The availability of the Just Eat App on the Apple Store, Google Play and Windows Store certainly gives users a wide range of takeaway options. Just Eat has certainly revolutionised the online takeaway space, and it is reaping the benefits of first mover advantage, with 56 per cent of its orders made via a smartphone or tablet device in the first half of 2014. 

That being said the rise in the share price since August last year raises even more concerns about the valuation of the company than was the case when it IPO’d in April last year.

Having peaked earlier this year at 380p, the shares appear to be showing signs of exhaustion at current levels, suggesting that a break below the February lows at 339p could trigger a sharp sell-off towards the 300p level.

Furthermore, concerns about the company being overvalued are only likely to increase given that it trades on an eye watering forward P/E of 110, well above its nearest competitors.

Whether you believe it is a technology company, or simply a bespoke takeaway and delivery service, the earnings expectations do seem a little high on either metric, suggesting that a company with a market cap of £1.9bn and limited intellectual property could well be punching above its weight, particularly since its total assets are less than £100m, and this remains a worry, despite the continuing rise in revenues and profits. 

Michael Hewson is chief market analyst at CMC Markets.

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