Hellofresh, Peloton, Zoom, Teamviewer, Shop Apotheke and other stocks are among the so-called “Corona winners” that benefited from exit, contact restrictions and hoarding during the pandemic, reaching very expensive valuations. Those who bought these stocks at the right time enjoyed exorbitant capital gains for a while. In the meantime, the euphoria has fizzled out and the stocks have fallen sharply. Is the current correction the second big buying opportunity for all those who “came too late” or will the stocks continue to go down? I take a closer look at the three Corona winners called HelloFresh, DeliveryHero and Logitech and give you with the answer for these shares.
Delivery Hero is an online platform with head office in Berlin for placing food orders and a much-criticized successor to Wirecard in the German DAX stock index. The German counterpart to DoorDash became a highly hyped Covid winner and tripled its share price within a year due to downright exploding food delivery orders. But since November 2021, Delivery Hero’s stock fell in despleasure! Based on our criteria, we examine whether an investment in Delivery Hero could be worthwhile.
Expected revenue of around 10,1 billion $ in 2022, stock market value currently 23,4 billion $ and average analyst price target of 185,84 billion $. These are the key figures to build on. One thing becomes clear here. The analysts are much more optimistic here than the investors, because the price target is twice as high as the current quotation of the share. As recently as Jan. 10, 2022, Jefferies upgraded the stock to Buy with a price target of 205 $. The reaction to the last quarterly figures on 11.11.2021 was not entirely disappointing. The stock climbed by 1.33%.
No fair value of the stock can be calculated on the basis of the Dynamic Fair Valuation Calculation of dividendstocks.cash because the company has not generated any profits or positive cash flows until yet. Due to the IPO in 2017, there is also only a short stock price history, which also makes valuation using multiples such as the P/E ratio more difficult. Nevertheless, it can be seen within the few years that the stock is now valued significantly more favorably on the basis of the PSR (price to sales ratio) than in the past. For example, in late 2018, the PSR was over 14, while it currently stands at “only” 2,3. The recent decline in the PSR comes from the recalculation of the PSR as of Jan. 1, 2022. From this date, the forecast sales for 2022 will be used to determine the PSR, which will be significantly higher than the sales of the previous year.
To give you a better feel for the situation, let’s take a look at sales and margins. Of course, sales will increase due to the enormous pace of expansion. So far, however, the company has only managed to increase margins to a limited extent. The gross margin fell, while the operating margin and net margin showed slight upward trends. The number of outstanding shares increased. Compare Dec. 31, 2020 (200.5 million shares) – June 30, 2021 (237.9 million shares).
How is this to be interpreted: The gross margin provides less information than the net and profit margin. While the gross margin only shows what percentage of sales is left over, the net margin, which also takes into account the company’s costs, shows that there are tendencies towards slight economies of scale. As can be seen from the sales and margin graph, sales (green) are increasing significantly according to forecasts, while margins, on the other hand, are growing at a much slower rate.
These include legal uncertainties, government regulations, ethical standards (payment & treatment of drivers) but also political risks, e.g. in emerging countries where the company operates.
The consolidating market is squeezing out more and more providers from regions and target markets, so that an oligopoly of delivery services is dividing up the overall market. The company itself estimates that well-financed market players will make every effort to win market share for themselves. The post-merger integration of companies acquired in the past could result in ongoing costs for integration processes that have not been completed.
Cyber attacks and other IT security risks cannot be ruled out. Delivery Hero stores millions of customer data. From the business side, the risk is considered likely (source own risk report from 2020 financial statements) that third-party IT and telecommunication systems such as SAP and Salesforce, which are difficult to interact with other tools due to their complexity, could result in high data inconsistency and incompatibility.
Delivery Hero placed a convertible bond of €3.25 billion in 2020 (around 3,7 billion US$). This high level of convertible bonds has positive and negative effects.
Positive: There are no significant interest-bearing liabilities, so the risk of interest rate fluctuations is low.
Negative: This type of financing increases vulnerability in unfavorable economic conditions. Should acquisitions be necessary (such as the 6,5 billion US$ acquisition of Woowa in Korea in March 2021), Delivery Hero may lack the ability to hold the necessary funds to make acquisitions.
On balance, Delivery Hero recognized total liabilities of 5,39 billion US$ as of Dec. 31, 2020, with an equity ratio of 37.3%. However, the liabilities as of 31.12.2021 could be much higher due to the fact that the company is not profitable and 6,50 billion US$ in cash and shares were put on the table for Woowa. According to my calculations, I estimate the equity ratio to be currently only about 20%.
Major shareholder Naspers
The major shareholder Naspers, which holds just under 30% in Delivery Hero, is an additional risk. In the event of the sale of blocks of shares, the stock price would plummet. Here are the top owners of Delivery Hero:
Delivery Hero is a digital delivery giant operating in over 50 countries. The company is expanding significantly and constantly increasing its reach, but only due to the fact that they are buying market share with cheaply raised money. In the third quarter of 2021, Delivery Hero was able to book 791 million orders for itself. An increase of 52%. In Q3/2021, they generated 2,05 billion $ in revenue, but were not profitable.
Growth has been “bought” through acquisitions in the past. Recently, the entry into the Saudi Arabian market failed. The competition commissions had rejected the takeover of “THE CHEFZ”. The takeover of “MRSOOL” was also not completed. On the other hand, the takeover of the competitor “Glovo” from Spain, valued at 2.3 billion euros, was successful in January 2022, as reported by Manager Magazin. It is quite possible that there will be liquidity bottlenecks for the above reasons and fresh capital will be needed.
Google trends worldwide also shows that Lieferando (red) has increased, while Uber Eats (yellow) has stagnated since October 2020 – but has not suffered losses like Delivery Hero (blue).
Another negative news reached the shareholders on Dec. 22, 2021. Delivery Hero will withdraw from the German market with its Foodpanda business because the competition from Lieferando (owner: Just Eat Takeaway NL0012015705) was too big.
CEO Niklas Östberg justified the decision to withdraw from the German market by saying that it was becoming increasingly difficult to offer real added value for the customer.
But this was exactly what Delivery Hero was still boasting about at its 2020 investor presentation, where they presented their own corporate goals for growth and profitability in 6 points:
Delivery Hero sold its original German business, including the Pizza.de, Lieferheld as well as Foodora brands, to its largest competitor in 2018.
From 2023, the minimum salary in Germany will rise from the current € 9.82 to € 12 (in $ 13,68). According to the salary platform Glassdoor, a courier – also called a rider – earns an average of €11 (12,54 $) per hour. Rising minimum wages have also been adopted in other markets such as the United States. One example is New York. There, the minimum wage is to rise gradually to $15. But that’s exactly what’s hitting delivery services hard, because most of their employees work in the low-wage sector. That means rising costs, which Delivery Hero can only pass on to a limited extent. Competitor Lieferando only confirmed it wanted to raise wages on Jan. 11, 2022, and it didn’t do so voluntarily. High sickness rates and complaints from couriers gave the reason.
The barriers to entry for other food delivery services are not exactly very high. In my view, any larger municipality could develop an app for bakeries and restaurants to promote the principle of regional purchasing. Even an expanding scale of operations would probably not result in significant cost savings in the case of Delivery Hero. Scalability is limited. The strong financial base behind Delivery Hero merits a neutral rating.
Conclusion on the Delivery Hero stock- All or nothing!
It’s a brutally competitive market. But Delivery Hero is managed just as hard and aggressively. All or nothing is the motto. They try to elbow competitors out of the market or buy them up. This approach can have both positive and negative consequences for shareholders. The business of delivery services is characterized by takeovers and consolidations such as that of Grubhub by Just Eat Takeaway. Labor costs, little scalability of the business model, and an imminent end to the pandemic all point to a difficult market environment. The only ray of hope would be a strong consolidation of the market and thus lower competitive pressure for the remaining players. But this is not in sight so far, even though Delivery Hero claims to be the world’s number one local delivery service.
In 2021, the company made a loss of about 0,86 $ per order despite its size. So far, however, management has repeatedly managed to raise fresh capital. However, if further growth were to slow down and losses were to widen, this could lead to a meltdown of the stockprice. So far only deep red figures, many well-capitalized competitors, a shallow moat and the hardly predictable business development make a purchase of the Delivery Hero stock extremely risky. Investors who get in here are betting on the imminent formation of an oligopoly in which their company will be one of the winners. True to the motto “the winner takes it all”.
|Valuation||undervalued using multiples|
|Fair Value 12/2023||not calculable|
|operational and financial risks||high|
After Delivery Hero, we now come to another online player in food delivery. Founded in 2011, HelloFresh was often ridiculed at first. But the success story took off in 2020 at the latest. The stockrushed from record high to record high. But then came the 08.12.2021! At the capital market day of the Kochbox mail order company, it was communicated that sales growth in fiscal year 2022 would be in the range of 20% to 26%, which equated to a significant slowdown in growth. This is because HelloFresh was still growing by a whopping 60% in 2021. Investors were also told that investments in IT infrastructure were planned, which could weigh on profits.
On my website Aktieninvestor.net, I analyzed the company on 05.10.2021. My assessment of the overvaluation at a price of 93 US$ at the time proved true, as the stockis currently trading below 68 US$. Nevertheless, the shipping of cooking boxes is one of the most interesting growth markets. According to forecasts, growth rates of up to 100% are expected by 2025. The Kochboxversender could grow strongly in the period from 2020 to 2021, since the new customer acquisition was conditioned by Corona an easy one. At times, it was so overwhelmed with demand that it asked customers to withdraw orders. However, future growth in the post-Corona era will be much more costly for HelloFresh due to higher spending on new customer acquisition and discount promotions.
Despite the dampener on the stock market, the management team has been doing a very good job so far. And they are optimistic that they will be able to further expand their leadership position in the market. In the USA, the range was expanded by up to 150 products on a test basis in mid-2021. There, HelloFresh offers snacks, desserts, vegetables, spices and cereals. Cooking box subscribers can add this to their weekly order. The plan is to generate additional sales of around €10 billion (11,4 billion $) from additional products in the medium term.
2021 was a record year with more than 60% revenue growth. For 2022, the cooking box shipper expects an operating profit of 570 million $ to 660 million $. As analysts had targeted higher growth, the stockprice suffered heavily recently and HelloFresh was mostly at the performance end of the DAX. But now to the valuation ratios. The stock is trading at a P/E ratio of 36.7. The adjusted P/E ratio of the stock since the IPO is significantly higher at 46.04.
With prices currently in the range of 68 $, the stockis valued much more favorably than in a historical comparison. On Jan. 11, 2022, the average analyst price target is 102,60 $. Also following the capital market conference of HelloFresh mentioned at the beginning, the analysts remained optimistic and did not lower any forecasts except for DZ Bank (price target lowering to € 87,78 $). The latest analyst estimate comes from Jefferies with a target price of 129 $ from 10.01.2022.
A valuation based on the P/E ratio is not sufficiently meaningful, we include the price/sales ratio. Here, too, the picture is similar. As can be seen above, the mean value of 1.72 is above the current value of 1.46. The trend here also shows a slight undervaluation of the stock.
According to the Dynamic Fair Value Calculation, a fair stockprice of around 114 $ per stockcould be recorded at the end of 2023 if the good order situation continues and the sales and earnings targets are achieved.
The company defines potential issues that could affect its business model in its risk and opportunity report (see photo below). I will go into more detail on a few key points:
Unexpected intense online/offline competition.
One risk that should not be underestimated is new market entrants. Walmart in the U.S., as well as ALDI and other supermarket chains, are not letting their business be taken away without a fight. HelloFresh operates in what is probably the largest market in the world with a volume of US$ 9,070,722m in 2022.
Dependence of company growth on acquiring new customers
It is difficult to generate double-digit revenue growth via existing customers. At best, the number of weekly cooking boxes can be increased. However, the operational growth targets can only be achieved by acquiring new customers.
Market growth and ESG criteria:
The market for online food will grow strongly in the next few years, but the topic of environmental awareness is also playing an increasingly decisive role for consumers. But how environmentally friendly are cooking boxes actually? This question was investigated by the website “Ecowatch“. The advantage of cooking boxes is high-quality and ready-portioned, gram-precise food. This means less packaging waste and less food waste. It was found that cooking boxes can actually help make our diets more sustainable. HellofFresh declares itself CO2 neutral on its own website. For this reason, the business model definitely has a future!
Economies of scale low:
Due to the multiplication of users during 2019 – 2021, no large “economies of scale” can be derived. HellofFresh’s margins are not significantly higher than before the pandemic. This leaves doubts about the scalability of the business model. There is no question that certain economies of scale result from the size of the operation, e.g. in the area of logistics as well as the procurement of raw ingredients. Nevertheless – above a certain company size, these “economies of scale” can no longer be significantly reduced.
How important is HelloFresh’s branding?
Brands such as Coca-Cola, Apple, or Mercedes set an example. For decades, they have all managed to differentiate themselves from the competition through their brand awareness. HellofFresh no longer holds a monopoly position in the cooking box segment either. Supermarkets such as Aldi, Walmart, etc. now offer their own cooking boxes. This is simplified by the fact that these boxes can be picked up directly at the store, for example on the way home from work. HellofFresh does not have this location advantage. If HellofFresh wants to remain the market leader, this means high marketing expenses, which come at the expense of margins.
Since HelloFresh is an online company, we should definitely still look at the current search trend on Google. Interest in the search term “HelloFresh” decreased significantly over the summer of 2021, which is normal for cooking box shippers. In the period between 12/19/2021 and 12/25/2021, it dropped to its lowest level since March 2020, but then recovered in the last week of December.
Points such as the HelloFresh Loyalty Club, its own app, high-quality ingredients and sophisticated recipe ideas, collaboration with influencers and the high brand awareness of the DAX company make HelloFresh unique. The needs of the target group are covered by the above points.
HelloFresh is rated 4.30/5.00 at Trusted Shops, which indicates a high level of customer satisfaction. Customers explicitly praised the fast and problem-free delivery as well as the selection of fresh ingredients.
A clear “yes” for the moat.
For HelloFresh shareholders, the year 2022 will be very exciting. It will become clear whether first-time customer acquisition can continue to succeed as favorably as in Corona times or whether future growth with expensive new customer advertising and discount campaigns for first-time customers will put pressure on margins. The market is fiercely competitive, with rich supermarket chains and other big-name cooking box providers such as Marley Spoon vying for market share. From a fundamental perspective, the margin of safety may already be large enough at current stockprice levels. HelloFresh is a growth stock. As an investor, one should nevertheless keep in mind, in addition to the high opportunity for price gains, that failure to meet consensus estimates can lead to strong sell-offs. Personally, I am waiting for a bottom to form here and prefer to buy only in the wake of an incipient uptrend with generous stop-loss protection.
|Valuation||good to possibly undervalued|
|Fair value 12/2023||around 114 $|
|operational and financial risks||neutral|
After our two companies from the food sector, a third Corona winner is also to be put to the test. Logitech international S.A. is a manufacturer of computer accessories from Apples in Switzerland. The company’s operational headquarters are located in Newark, California. Each of us is familiar with the products from the electronics market. Logitech has managed to defend its pricing power and differentiate itself from low-cost competitors for several years. The management has both costs and capital allocation well under control. No acquisitions are made if it is felt that the price is too high. For example, the planned Plantronics acquisition was canceled. Logitech CEO Bracken Darrell – who, by the way, has an MBA from Harvard – gave an interview to CNBC as recently as Jan. 6, 2022, saying “the Metaverse is one of the biggest opportunities in Logitech’s history.” However, Logitech is also a heavily penalized stock. We again examine whether an investment is worthwhile based on the five criteria mentioned at the beginning.
The current valuation level of the Logitech stock.
From a value perspective, Logitech’s stock can be assessed somewhat more easily than HelloFresh and Delivery Hero. Here, we have a larger stockprice history and a slower-growing, but still very stable business model.
The current stockprice is well below the 52-week high. However, the stock seems to be fairly valued again after the rocketing price increase in 2020. A look at the analysts’ estimates shows a somewhat different picture. At the time of analysis, the median price target is CHF 98.67, which is significantly higher than the current price. However, caution is advised here, as price targets have recently been lowered rather than raised. Morgan Stanley first downgraded Logitech to CHF 82. Other analysis houses could follow suit. This could put pressure on the stock price.
If Logitech were to meet its targets, the fair value would be around CHF 76 at the end of 12/2023. Only marginally higher than the current stockprice. The rather meager dividend yield of about 1.25% only marginally sweetens the holding period, but is very likely to increase somewhat.
These are the operational and financial risks of Logitech
With a stable equity ratio of about 59%, Logitech is well positioned and should be unlikely to run into operational financial difficulties. Free cash has been used for share buybacks or dividend payments.
Market entry by low-cost asian manufacturers
Computer hardware could become much cheaper due to low-cost manufacturers from Asia. Logitech’s margins would inevitably decline and profits would fall. But Logitech has a first-class product catalog and is regularly praised in the press. Nevertheless, the danger is real that new brands from the Far East could also get a similarly good reputation and affect the business model.
A key risk would be an overpriced acquisition that could shock investors. Expensive acquisitions are not uncommon in the segments in which Logitech operates.
Logitech’s business model
The business model around the sale of hardware components is future-proof. It is a saturated market that nevertheless provides the company with stable sales. Logitech divides its business model into 10 different divisions such as Gaming, Audio and Wearables or Smart Home. The smart home and gaming sectors are also strong growth markets with significant, double-digit growth rates.
Webcams, group conferencing devices, keyboards and much more are part of Logitech’s standard repertoire. One exceeded quarterly estimates every time looking back to Q3/2019. This proves that the management is realistic about its own targets and can also keep them without disappointing investors.
Logitech is the world market leader and therefore already has a certain pricing power. A close-knit distribution network of tens of thousands of sales outlets worldwide ensures that the products are visible to consumers. Contracts with many electronics chains and a high level of customer satisfaction with Logitech’s products represent a moat that should not be underestimated. The brand is well-known and popular.
Another moat is the company management. Hardly any debts, several years of stable margins and product groups that stand out from the low-price competition. No crazy takeovers and realistic corporate goals, most of which have been achieved.
The financial situation of the company with its nearly 9,000 employees looks excellent. Analysts have regularly revised their expectations for business development upwards for the past fiscal year. The widely touted Metaverse could lead to new dynamics in the coming years, this is also the opinion of CEO Bracken Darrell. This is also the opinion of CEO Bracken Darrell, who has managed to defend Logitech’s relative pricing power in recent years. This is an achievement that deserves to be appreciated. It is also worth mentioning that Logitech is already climate neutral and soon intends to be climate positive. From the current perspective, the sharp sell-off in Logitech stock could be for an entry point for long-term investors. However, a clear “margin of safety” at the fair price is not yet available.
|Fair value 12/2023||no big gains to expect. Around 76 CHF|
|operational and financial risks||low|
You don’t get anything for free on the stock market. Even if prices magically go up for a while, sooner or later stocks come back down to earth. As soon as fantasy and greed escape from the prices, the time of hard facts comes, in which you can only separate the wheat from the chaff with tools like the stock finder.
Delivery Hero, for example, is still far too risky for me to buy, even after the 40% drop in the stock price from its all-time high. Logitech is in a much better position. However, the short- and medium-term return potential is still too low for a purchase at the current price. My favorite is HelloFresh. The well-managed company is profitable and, after the recent price losses, I believe the potential return is also good. You can find more buying opportunities in the sell-off in the stock finder, where you can analyze and evaluate each stock fundamentally.
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