Delivery Hero 70% below peak - opportunity or trap?

Delivery Hero (DHER.DE) is a German multinational corporation providing food delivery and online ordering services. The company operates in over 50 countries on multiple continents and works with over 500,000 restaurants.

• Delivery Hero lost almost 30% on Thursday and is today adding to its near 10% fall, amid weak forecasts for 2022. The company has lost almost €6.2bn in capitalisation since yesterday.

• The company is engaged in door-to-door delivery of purchases. It has gained value thanks to lockdowns and a reluctance to leave homes alone during the coronavirus pandemic. For this reason, the company was one of investors' favourites during the Covid 19 pandemic crisis. The company is now facing increasing competition. The impact of rising inflation on future results is an additional risk factor.

• However, the company's Q4 2021 results were quite good and the trend of delivering purchases to customers may continue even after the coronavirus pandemic due to popular remote working. We will try to assess whether the share price decline can be considered a potential opportunity or a trap after all.

Were the results bad?

Delivery Hero released a nice report for Q4 2021. The company generated close to €9.6 billion in value of completed orders, up 39% year-on-year. Revenue also increased by a spectacular 66% to almost €1.9bn in Q4. For 2021, total sales were almost EUR 35 billion, exceeding the company's forecasts. Revenues increased by almost 90% to over $6.5bn, roughly in line with the company's expectations. At the end of 2021, the company bought a majority stake in Spanish company Glovo, increasing its share in the supplier market sector.

The company has also conveyed that it does not need to and does not intend to raise additional capital, putting it at risk of an interest rate hike. However, it is not entirely clear how inflation and a rate hike will affect the company's results in 2022. Markets in recent times have tended to discount a negative scenario, though it is by no means the only likely one. The threat to Delivery Hero, however, is certainly growing competition.

Is the end of the pandemic the end of growth for the company?

The sell-off in Delivery Hero's shares after a strong Q4 2021 report can be interpreted as an investment opportunity due to its sharply lower valuation, and the sizable price move may attract the attention of a large portion of market participants. 

Recently, markets have been pricing in the possible end of the pandemic and the upcoming summer season. This is usually the time when the number of Covid-19 infections drops and people's activity outside the home increases. However, the number of cases of coronavirus at the moment remains at high levels despite access to vaccination. Recently, markets may have rushed so quickly discounting the slowing pandemic and getting rid of shares in popular companies. Going by this stock sell-off may not be a bad omen for the company at all but an investment opportunity. 

Delivery Hero, despite the decline in investor interest, is still likely to generate strong revenues thanks to the global trend of remote working and learning, among other things. We also cannot rule out further lockdowns in the future. They could again lead to a significant increase in interest in the services provided by the company. Of course, it is worth remembering that ordering takeaway food itself is a very convenient solution. With the further enrichment of society, this should favour the company's prospects. Potential further acquisitions by, which could lead to Delivery Hero becoming more competitive, and taking a larger market share cannot be ruled out either.

If the trends popular during the pandemic (remote working, confinement to homes) do not continue, and societies quickly return to 'normality' Delivery Hero shares could fall lower. Investors avoiding high risk have sold the stock and preferred to take the profit generated by the company during a pandemic.

DeliveryHero (DHER.DE) stock quotes remain in a strong downtrend. This week, there was a breakout of the support at $53, where the 78.6% Fibo measure and previous price reactions were located. Currently, the price is trying to bounce from the next ratio - 88.6%, but the sentiment remains bearish. In case of breakout below, the next target for sellers may become the level of $31.  Source: xStation5