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Just Eat joins the big league

The entry of takeaway firm Just Eat into the FTSE 100 marks another shift in the London stock market, as the firm itself looks forward to more growth.

London Stock Exchange
Source: Bloomberg

The FTSE 100 is an index dominated by mining, oil and finance firms, which together make up a significant proportion of the weighting, and thus have the biggest impact on daily movements. However, there is a broad range of firms, including utilities, retailers and housebuilders. Now, an online takeaway company joins the ranks of London’s elite stocks.

Just Eat has seen its shares rise 40% over the year, while the FTSE 100 itself is up by less than 4% (excluding dividends). The rise in the share price has come on the back of excellent trading updates and steady growth, not just in sales, but in profits as well. Just Eat has even begun to generate free cash, something that AO World, which underwent an initial public offering (IPO) around the same time, has yet to achieve.

At around 36 times forward earnings, the company is not exactly cheap, but then this kind of lofty valuation is the kind of thing investors have learnt to expect. After all, Amazon has traded on a price-to-earnings (P/E) ratio that is many times higher, and that has not stopped investors from rushing to buy the shares. And Just Eat has healthy margins as well, at 31% of sales, much better than many other firms that are looking to make money off the hard-pressed UK consumer.

Perhaps the secret of its success has been its mass-market appeal. While Deliveroo (still private) looks after City types, with more money to spend and more esoteric tastes, Just Eat has struck gold in the traditional takeaway fare of curries, pizzas and kebabs. Its acquisition of Hungryhouse confirms its dominance in the market, and with takeaway spend in the UK expected to hit £11.2 billion by 2021, after 34% growth in 2016, the future seems assured for Just Eat.

Just Eat has enjoyed an excellent uptrend over the past two years, starting out back in February 2016, and seeing a series of higher highs and higher lows since then. An all-time high at 827p was hit in November, and pullbacks could find support at 757p, and then 723p.

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