High growth stocks can be a boon to smart investors.
The two companies we’re talking about here—GrubHub (NYSE: GRUB) and Square (NYSE: SQ)—have both seen shares climb this year, but what I’m more interested in is the performance of the underlying companies and their prospects for the future.
Both of these companies are winning customers in droves, and are scaling their businesses in ways that will keep the customers rolling in for years to come.
Here’s what you need to know about these two companies.
GrubHub (NYSE: GRUB)
GrubHub (NYSE: GRUB) is up nearly 91% year-to-date. And it’s no wonder why: the company controls half of the U.S. food delivery market, according to estimates from analytics platform Second Measure.
Much like Facebook, GrubHub has run with its first-mover advantage in the high growth market of food delivery, turning itself into a household name as it grabs market share. Its two nearest rivals, Uber Eats and DoorDash, control just 21% and 15% of the market, respectively.
The key with GrubHub is that it has two moats: there are high switching costs for restaurants which means most won’t want to deal with the headache of switching to a different ordering and payments operator, there’s also the fact that as more customers go to GrubHub to find the food they want, the more restaurants know that they need to be listed on the site to access those customers.
GrubHub is dominating by having gobbled up many of its rivals including Seamless, Allmenus, and DiningIn, among others. Just last week, the company announced that it is acquiring Tapingo, a college food ordering service that operates on 150 campuses nationwide, for $150 million.
“We are excited to add Tapingo, a company that shares our vision of bringing greater convenience to diners and improving the restaurant ordering and pickup experience through technology,” said Matt Maloney, founder and CEO of GrubHub. “We value the college student population, many of whom we hope become life-long GrubHub diners with their first order.”
GrubHub also recently acquired LevelUp—a restaurant loyalty technology provider—for $390 million, which gives the company an engaging technology stack with a large portfolio of restaurant relationships.
The company’s efficient delivery network and new quality-focused restaurant partners saw its revenues climb 51% year-over-year to $239.7 million in Q2, beating analysts’ estimates. The company also reported earnings of $0.50 per share, a 92.3% year-over-year jump, driven by a substantial increase in orders and revenues, as well as improved operational efficiency, according to Zacks.
Just a few weeks ago, both Craig Hallum and Wedbush gave the stock a price target of $180, indicating possible upside of 31% over the next twelve months.
Square (NYSE: SQ)
Square (NYSE: SQ) has had a phenomenal year, climbing over 230% in the last twelve months.
And as if Square needed more bullish support from analysts, earlier today, KeyCorp reiterated its Overweight rating on SQ and upped its price target to $115, suggesting upside of an additional 18% over the next year.
And just last week, Nomura Instinet analyst Dan Dolev said Square could hit $125 in the next 12 months – nearly 28% higher than Tuesday’s closing price.
Why are these analysts so optimistic about Square? According to Dolev, “The most important thing to understand about Square is that their success with the larger seller is what has been the turning point for gross payment growth.” In the same interview, Dolev also pointed to the company’s rapid growth in sellers with more than $125,000 in annualized gross payment volume (GPV).
“They’ve hit an inflection point… in terms of their traction with larger sellers and that has been the seminal point,” Dolev said in the interview with Bloomberg. “They are the only payments company that has a fully cohesive ecosystem. It’s a very much Apple-like ecosystem. They are going after the sellers with the point of sale and the software and then they’re going after users – they’ve got more downloads for the cash app than Venmo. They’ve got 1 million more downloads for the cash app vs Venmo.”
In addition to point-of-sale and peer-to-peer payments, that ecosystem also includes web hosting, small business loans through Square Capital, and a suite of software tools that includes payroll and invoice management software which is helping Square to break into the HR market, which could be a $50 to $60 billion market.
“Similar to FANG stocks that have disrupted traditional markets with massive global total addressable markets, Square’s fully cohesive solutions and rapid rate of innovation suggest that it is en route to disrupt the global payments ecosystem,” Dolev wrote in a note titled, “Adding the ’S’ to FANG(S).”