My wife and I have taken on a new Friday night ritual.
And it just so happens to involve what promises to be a very lucrative trend for savvy tech investors.
Let me explain.
My wife and I have pretty demanding jobs, and we just don’t have the energy to cook on Friday nights. So, for years, we’d usually order pizza to be delivered, occasionally switching things up with Chinese.
But a few months back, our mobile-centric daughters started talking up the joys of online ordering for food delivery. We decided to give it a try, and now we’re hooked. One of the things we like most about this type of service is it gives us the ability to order from dozens of local restaurants.
And that’s playing out in homes all over America as online and mobile orders shakeup the U.S. restaurant industry – one currently valued at roughly $800 billion.
So, even a small portion of that massive market spells big profits for a firm that has the right kind of tech to hook hungry buyers as repeat clients.
With that in mind, today I’m going to show you a firm that is doing just that.
And I’ll show you why its stock is set to double in less than two-and-a-half years.
Getting Your “Grub” On
Now then, I’ve often written here highlighting this inescapable fact about the U.S. economy – every business today is a tech business.
Among other things, they all need access to e-commerce, digital payments and mobile apps.
That last category is particularly tough for restaurants. They just don’t have the time and talent to launch their own accurate online and mobile-ordering systems.
That’s where GrubHub Inc. (Nasdaq: GRUB) comes into play. It offers users the chance to order their favorite foods from their desktops or handhelds, get an estimate of delivery time, find restaurants by cuisine type and weigh user ratings.
In other words, it’s a robust portal. And that’s a big reason why industry experts say the portion of online restaurant orders could double in less than a decade.
Make no mistake – GrubHub is a seasoned leader that stands to offer investors at least a double in price appreciation.
Now, let me show you why by running it through my five filters for building tech wealth.
Take a look…
Five Rules for Building Tech Wealth
Tech Wealth Rule No. 1: Great companies have great operations. These are well-run firms with top-notch leaders.
No doubt, Matt Maloney is one of the least known CEOs in the tech industry today. But don’t let that fool you – this guy is no slouch.
He not only founded the firm, but has been the guiding force behind its amazing sales and financial success. He’s led it through five rounds of venture funding, and took the company public in 2014.
Maloney holds two master’s degrees, including an MBA, from the University of Chicago, where he serves as an advisor. In 2016, Forbes named him one of the nation’s most powerful CEOs under 40. Two years before that, Fortune named him one of the top 50 business people.
Tech Wealth Rule No. 2: Separate the signal from the noise. To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals.
To hear Wall Street and the financial media tell it, the online food delivery business is already saturated. Uber Eats and Door Dash are two rivals in the field that command the most attention.
But neither of them are publicly traded. More to the point, GrubHub has quietly been buying up little-known regional players, making it the sector’s top consolidator.
The firm also boasts some major backing, recently snagging a $200 million investment from Yum! Brands Inc. (NYSE: YUM). Yum owns KFC, Pizza Hut and Taco Bell. Grubhub is now partnering with Jack in the Box to deliver fast food for hundreds of U.S. locations.
Tech Wealth Rule No. 3: Ride the unstoppable trends. Look for stocks in red-hot sectors because they offer the best chance for life-changing gains.
Online and mobile ordering really didn’t make much of a dent as recently as 2013. But a study by McKinsey & Co. forecast the segment would grow by at least 15% through the end of 2020.
Now, I believe that understates the real potential here in the U.S., where restaurant sales are nearly $800 billion a year. Statista says that roughly 10% of that goes to takeout.
As millions of consumers learn that the whole restaurant industry will bring food right to their doorsteps, that portion could easily double in the next few years.
Tech Wealth Rule No. 4: Focus on growth. Companies that have the strongest growth rates almost always offer the highest stock returns.
Over the past three years, GrubHub has grown its sales by an average 38%, meaning they are doubling roughly every two years. But it did even better in the first quarter, with sales rising 49% from the year-ago quarter to a record $232 million.
And recently, daily active diners climbed 72% to 15.1 million as more diners decide to opt for takeout or have meals brought to their homes.
Based on those results, I still see plenty more growth ahead.
Tech Wealth Rule No. 5: Target stocks that can double your money.
This is where we look at the firm’s earnings growth and see how long it will take to double profits. By doing that we can figure out how long, on average, it should take for the stock to roughly double.
I’ve gone through the firm’s financials in detail, and I’m projecting earnings per share will grow by an average of 30% over the next three years.
Bear in mind that is a very conservative approach.
With an $11 billion market cap, the stock trades at roughly $118.
And over the past three years, the firm has had an average 33% growth in earnings per share. That figure more than doubled in the first quarter, to 70% earnings growth. To take a cautious approach, I cut that by more than 50%.
Now we’ll consider what I call my doubling calculator. Mathematicians call it the Rule of 72. Let’s divide the compound profit growth rate of 30% into the number 72. We find that it should double in two years, but to be extra conservative, I extended that out to 2.4 years.
And I’m not the only one expecting big gains ahead. On average, analysts expect the firm’s earnings will climb by 58% during this current quarter.
In other words, the stock should continue to enjoy strong catalysts that will help it double in value.
That means as millions of Americans join my wife and I in online ordering for takeout, the value of your holdings will keep rising for years to come.
Now that I’ve told you about the impressive combination of factors fueling GrubHub’s growth, you’ll also want to check out my latest investor briefing about a disruptive company that’s going to upend the way we get our electricity.
This firm’s tech could spell the end for the way we power our TVs, lamps, smartphones, and even autos.
Cheers and good investing.
I’ll see you back here soon.