Investors in online grocery company Goodfood Market Corp. (FOOD-T) continue to reap the rewards from the company’s aggressive growth strategy and the trend towards online grocery shopping amid the pandemic.
Goodfood shares are up by about 38 per cent over the past month and 228 per cent over the past year, as of Friday’s close. The stock was trading at around $8.90 early Tuesday. The stock has traded between a range of $9.58 and $1.49 over the past 52 weeks. Among the seven analysts that cover the stock, the average target price is $9.59, according to S&P Capital IQ.
Late last week, Goodfood announced the launch of “Goodfood WOW,” a new unlimited same-day grocery delivery service in the Greater Montreal Area. The company said the new service is scheduled to expand to other major Canadian cities over the next year.
“We believe the launch of same-day delivery was the next logical step for Goodfood in its pursuit of a larger share of the food-at-home opportunity,” Desjardins Securities analyst Frederic Tremblay said in an Oct. 8 note.
He has a “buy” and a $10 target on the stock.
“In our view, this new service strengthens the company’s value proposition as same-day delivery is consistent with the quick turnarounds consumers expect for grocery shopping,” he wrote.
Mr. Tremblay also said faster delivery times “will be a clear differentiator versus the competition” and the announcement is timely “given the accelerated penetration of online grocery shopping in Canada since the beginning of the COVID-19 pandemic and believe they should support the company’s next phase of growth.”
Eight Capital analyst Brian Lee notes the latest Goodfood news follows an announcement made in August that the new fulfillment centre in Montreal is expected to be operational by early fall, which would support the same-day delivery service.
“We believe FOOD is well positioned to further accelerate online grocery shopping by increasing subscribers' flexibility,” he wrote in an Oct. 8 note, citing the company’s stock ticker. Mr. Lee has a “buy” on Goodfood and $10.50 target price.
Mr. Lee said Goodfood is one of the first companies to offer same-day delivery service in the meal kit industry. “This allows subscribers to experience a faster and more flexible service that will ultimately result in increased customer stickiness in order frequency,” he wrote, citing Capgemini Research showing 75 per cent of consumers say they would spend and shop more frequently with a retailer that offered timely delivery of online grocery orders.
“Goodfood continues to be a major beneficiary of a shift in consumer trend towards online grocery shopping in the midst of the pandemic, even with stay-at-home restrictions getting lifted,” Mr. Lee wrote.
Stephen Takacsy, chief executive and chief investment officer at Montreal-based Lester Asset Management has owned the stock since June 2017, buying a block at $1.40 shortly after the $2 initial public offering.
“It was an unusual purchase for us as the company was expected to lose money for several years,” Mr. Takascy said, “but I was very impressed with management and felt that if they were able to execute well, they would eventually become an attractive acquisition target for one of the big grocery chains.”
His firm continued to buy the stock in 2018 and 2019 between $2 and $3 and occasionally trimmed and then bought back again at lower prices. “But that’s really only trading at the margin as we are long term holders,” he said.
“Goodfood is one of the fastest-growing companies in Canada and it’s all organic growth,” Mr. Takacsy said. “As long as Goodfood’s valuation at 1.5 times sales stays well below that of Hello Fresh at 2.1 times sales, and that the valuation stays reasonable in relation to its growth rate, we will hold the stock.”
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.