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Goodfood management is heavily invested in the stock with the co-founders, Johnathan Ferrari (left) and chief financial officer Neil Cuggy, together owning about a 45-per-cent stake.

The growing popularity of meal-kit delivery services has helped to drive up the share price of Goodfood Market Corp., one of Canada's largest and fastest-growing companies in the nascent sector – but there are risks ahead, including intensifying competition from large retailers.

Shares of Montreal-based Goodfood are up about 40 per cent since it went public at $2 on June 7. Both analysts who cover Goodfood, currently Canada's only publicly traded meal-kit delivery provider, have a "buy" on the stock with an average 12-month target price of $3.13, or about 12 per cent above its current price around $2.80.

Goodfood is a subscription-based service where customers order meals online and have the premeasured ingredients delivered to their door each week. The service, currently offered by Goodfood in Eastern Canada and coming to Western Canada later this year, targets busy professionals who don't have time to shop for groceries but also prefer cooking and eating at home.

Analysts and investors like the company for its prominent market position: Goodfood has about a 40-per-cent market share in Canada, similar to private company rival Chefs Plate and ahead of German meal-kit giant HelloFresh AG and a handful of smaller players. Goodfood has also seen a spike in active subscriber growth to 45,000 as of Nov. 30, the end of its first quarter, up from 8,000 a year earlier.

"If you like the industry, then the play is Goodfood," National Bank Financial analyst Leon Aghazarian said in a recent interview. He has a $3 target on the stock.

Mr. Aghazarian estimates about 112,500 of the 13 million households in Canada currently receive meal kits from Goodfood and other companies in the sector. Crunching the numbers on average cost, order frequency and so on, he sees a current market penetration of just less than 3 per cent of households. That's below the U.S. market, where about 4 per cent of households are being served by meal-kit providers.

Given that it's a new and growing industry, Mr. Aghazarian estimates the meal-kit industry size in Canada could easily grow from $120-million – his estimate of the market now – to $1-billion in the next five years, "representing a drop in the ocean relative to the $145-billion Canadian grocery market size. We believe that the market potential could be even more material should order frequency and penetration continue to grow," he said in a recent note.

GMP Securities analyst Martin Landry, who has a $3.25 price target on the stock and "speculative buy" recommendation, said the Canadian industry is lagging the U.S. industry by about two to four years.

"Goodfood has experienced rapid growth since inception. If its momentum continues in relation to industry growth, Goodfood could maintain its current market share," he said in a recent note.

By his analysis, the company could generate sales of more than $200-million by 2020. That's up from $19.8-million in the year ended Aug. 31.

"At a multiple of 1.5 times on forward sales, Goodfood shares could reach a valuation of $6 by 2022, a significant upside potential from current levels," Mr. Landry said in a note.

Pulling off that growth is a risk for the company, as is increasing competition in the sector. Major retailers, including Inc., are getting into the meal-kit business. In July, Amazon filed a trademark application for prepared food kits which, according to Bloomberg, caused shares of newly listed New York-based Blue Apron Holdings Inc. to drop by as much as 12 per cent. Blue Apron stock is down 66 per cent since the company went public in late June at US$10, amid operational issues that have led to a loss of customers.

Grocery chains are also getting into the meal-kit sector. Metro Inc. recently bought a majority interest in ready-to-cook meal delivery service MissFresh Inc., while U.S. supermarket chain Albertsons Cos. Inc. purchased meal-kit delivery service Plated.

Home grocery delivery, offered in Canada by chains such as Metro Inc., Loblaw Cos. Ltd., Sobeys Inc. and Longo's, is also a threat to the meal-kit industry, Goodfood chief executive officer Jonathan Ferrari acknowledged.

In a recent interview, Mr. Ferrari said his company aims to differentiate itself by offering a variety of curated meals, as well as cooking instructions and nutritional information, to build more of a customer experience. "We would never compete directly with trying to offer every single item you need for your week's worth of groceries," he said. "We're really thinking of different kinds of meal solutions."

The company reported revenue for the first quarter ended Nov. 30 of $11.2-million, up 412 per cent from a year ago and a 50-per-cent jump from its fourth quarter. Still, Goodfood has yet to make a profit. The company reported a loss of $2.5-million compared with a loss of $3.1-million for the same quarter a year earlier. Its adjusted net loss was $2.4-million or 5 cents a share, compared with an adjusted loss $421,697, or 2 cents, a year ago, which the company said was due to planned investments to grow its subscriber base, including a higher marketing budget.

Stephen Takacsy, CEO and chief investment officer of Montreal-based Lester Asset Management, one of the company's largest shareholders with about a 4-per-cent stake, likes the industry's large potential market size and the company's fast rate of growth. Plus, Goodfood management is heavily invested in the stock with the co-founders, Mr. Ferrari and chief financial officer Neil Cuggy, together owning about a 45-per-cent stake.

Goodfood could become a platform for other home-delivery products as it builds capacity across Canada, Mr. Takacsy said. Plus, it could be the target of another larger retailer looking to expand their presence in the meal-kit market, either through an investment or takeover.