Sell: GrubHub Inc. (GRUB 37)
From Cabot Growth Investor
Updated from WSBI 786, October 19, 2016
GrubHub Inc. (GRUB) reported a great third quarter this morning. Revenues rose 44% from a year ago, while earnings of 23 cents per share were four cents above expectations. All of the submetrics looked good as well: Active diners rose 19% (to nearly 7.7 million), average daily orders rose 26%, gross food sales leaped 33% to $735 million and EBITDA (a rough measure of cash flow) was up 65%.
The firm even saw EBITDA per order rise, a solid measure that profit margins remain in good shape. (Some of those figures were slightly inflated from a couple of recent acquisitions, but the pattern of accelerating growth was intact even after accounting for those.)
However, the market wasn’t interested in these figures at all—the stock opened a bit lower and then plunged throughout the day, clearly slicing through its 50-day line on huge volume. Whether it was simply a case of a risk-off market environment or not is up to others to figure out—we must act based on the evidence. If we had a profit, we might give GRUB a few days to sort itself out, but we bought the stock near the market’s high (in early September) and its lack of progress combined with today’s distribution tells us to sell. As with ABMD, the goal is to make sure a bad situation doesn’t get worse, so we advise selling and holding the cash.
Michael Cintolo, Cabot Growth Investor, www.cabot.net, 978-745-5532, October 26, 2016