A gain of 58.32% in 2018 for shares of GrubHub Inc. (GRUB) was likely helped by unusual trading activity in the stock. GrubHub shares have been performing very well this year even after a very solid 2017 return (+93.74%), and what makes this company interesting is that higher share volumes are accompanying the higher share price. With activity like that, it should come as no surprise that the stock has trended higher.
As food delivery gains in popularity, GrubHub should continue to post solid growth for years to come. Not only that, one of the biggest factors used to identify strong stocks for the long term is to look simply at supply and demand – and GrubHub stock has clearly been in demand. We have found that focusing our efforts in looking for companies with great fundamentals alongside bullish institutional activity can uncover great performing stocks.
In the view of Macro Analytics for Professionals (MAP), the strongest indicator of positive price momentum is obtained by measuring potential institutional accumulation. In 2018, GrubHub has logged four of these rare signals, with the first bullish signal occurring on Jan. 26. This is on top of the 17 rare signals GrubHub fired off in 2017. We want to see bullish activity in the stock's shares alongside solid fundamentals, as this indicates that demand for the stock should increase. (See also: Comparing the Business Models of Seamless and GrubHub.)
In the chart below, GrubHub's price gains over the year are accompanied by increasing accumulation. Shares recently broke above the highs made in March:
MAP's process focuses on identifying companies with healthy fundamentals accompanied by outsized, unusual institutional activity to try and measure potential accumulation/distribution at the single-stock level. By studying these data points, we can hypothesize which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for GrubHub are:
- Year-to-date (YTD) outperformance vs. market: +54.13% vs. SPDR S&P 500 ETF (SPY)
- YTD outperformance vs. sector: +46.59% vs. Technology Select Sector SPDR ETF (XLK)
- Bullish potential accumulation signals
On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, GrubHub has solid earnings and sales growth rates:
- One-year sales growth rate: +38.46%
- Three-year sales growth rate: +39.11%
- One-year earnings growth rate: +27%
GrubHub checks the box on strong technicals and fundamentals while showing bullish institutional momentum over the past year. We believe that the current level for the shares is in a position for further upside. GrubHub shares have been powering higher for the past year, and with multiple unusual institutional activity signals, they could be setting up for an additional move to the upside. All of this points to further long-term bullish action for the stock.
The Bottom Line
GrubHub represents a potential buying opportunity for the long-term investor. Given the solid earnings growth, sales growth and multiple unusual accumulation signals, this stock could be worth a spot in a growth portfolio.
To learn more about MAP’s institutional signals please visit our "About Us" page.
Disclosure: The author holds no position in GrubHub shares at the time of publication.