Deliveroo share price jumped after forward guidance. Time to buy?

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The Deliveroo (LON: ROO) share price crawled back on Thursday after the food delivery company delivered a relatively positive report and forward guidance. The stock rose to 123.95p, which is about 23% above the lowest level this year. 

Deliveroo to break even

Deliveroo is a leading food delivery company in the UK. Like many companies in the industry, Deliveroo was a top beneficiary of the Covid-19 pandemic as the number of people ordering food online rose. 

However, in the past few months, investors have been concerned about the company’s growth as the pandemic ends and more people start buying food at their local restaurants. As a result, the Deliveroo share price has crashed by about 68% from its highest level in August last year. 

Deliveroo’s revenue jumped by 57% to £1.82 billion as the number of orders rose to £6.6 billion. While its loss expanded to more than £131 million, the company excited investors by predicting that it will break even in the next two years. It expects to grow its profit margin to about 4% by 2026.

Still, like its peers like Just Eat Takeaway and Delivery Hero, Deliveroo is facing multiple challenges. First, the cost of labor has increased substantially in the past few months. For example, data published this week showed that UK wages rose by over 5% in January. 

The firm is also seeing the cost of doing business rise because of the significant cost of fuel. Gas prices in the UK have risen substantially because of the overall performance of crude oil prices. 

Most importantly, the UK has ended its Covid-19 mandates, meaning that more people are now eating out. As a result, there is a likelihood that the company’s growth will slow substantially. In a statement, the management said:

“We will continue to monitor developments closely. Our 2022 guidance reflects our caution on these factors but we are confident in our ability to adapt financially to a rapidly changing macroeconomic environment.”

Deliveroo share price forecast 

The daily chart shows that the ROO share price has been in a strong bearish trend in the past few months. As a result, the company has lost over two-thirds of value since going public. 

Despite the rebound, the stock is still below the 25-day and 50-day moving averages while the Money Flow Index (MFI) has formed a bullish divergence pattern. Therefore, the pair will likely resume the downward trend in the near term as investors focus on the firm’s risks. 

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