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Deliveroo share price: Mark Hiley predicts 40% drop before bottom hits

The Deliveroo share price is down 16.8% since 31 March, despite recent reports that sales have doubled during the lockdown. With disputes over pay looming large, analyst Mark Hiley believes shares could fall another 40%.

  • Deliveroo share price remains bearish
  • Analyst projects 40% drop in value
  • Company sales up, but pay dispute still a problem
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Mark Hiley, the founder of research firm The Analyst, recently told The Mail on Sunday that Deliveroo (ROO.L) shares may not yet have found their bottom. Shares in Deliveroo opened at 238p on 20 April, well down on pre-initial public offering (IPO) expectations. The food delivery company was due to join the London Stock Exchange (LSE) with a share price of between 390p and 460p. However, Deliveroo shares eventually opened at 331p when it was listed on 31 March. From that point, they have been bearish ever since.

How much has the Deliveroo share price fallen?

Even from the pre-IPO guidance of 390p, the Deliveroo share price is down 38.9% based on today’s opening value. Major City firms involved in the Deliveroo IPO are unable to publish research for at least a month. However, financial analyst Hiley believes the bearish trend is far from over.

Hiley commented:

‘We still think the stock could well fall another 40% before it hits bottom. We looked at Deliveroo in January when an IPO was first mooted, and it was obvious then that the company was operating in a highly competitive market and was facing legal challenges to its labour practices on multiple fronts.’

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What factors are hurting Deliveroo shares?

Sales are not the issue right now. Deliveroo reported a 114% uptick in orders between January and March 2021. This surge in lockdown activity saw total transactions for the first quarter (Q1) top £1.65 billion, compared to £715 million during the same period in 2020.

However, chief executive officer (CEO) Will Shu told the PA news agency last week that growth will ‘decelerate as lockdowns ease’. How quickly orders will drop is unclear, but Shu believes data from other markets is encouraging. In Hong Kong, all lockdown restrictions have been lifted and, according to Shu, there is still ‘really resilient growth’ in the region.

This may mean that activity remains high as England and the rest of the UK emerges from lockdown in June. Although the drop in orders may be a concern, the bigger issue facing Deliveroo is the dispute regarding rider wages. The revelation that some riders can earn as little as £2 caused the Deliveroo share price to open lower than pre-IPO guidance suggested.

A strike on 7 April hasn’t settled the issue, either, something Hiley has based much of his bearish sentiment on. Does this mean Deliveroo shares are set for further problems or can strong sales reverse the current trend?

Can Deliveroo shares rebound?

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Footnotes:

1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2 Deal three times or more in the previous month to qualify for our best rate.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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