Following the company’s IPO at the beginning of the year, investors may have hoped the Deliveroo (LSE: ROO) share price would outperform the market in 2021. Unfortunately, the stock has consistently failed to gain the market’s support. It has lost around 25% of its value since the IPO.
However, the company has made a lot of progress in 2021. Many investors doubted that the business could maintain 2020 levels of demand throughout this year, but it has proved them wrong. Not only has demand remained high, but it has grown.
And the firm has capitalised on this rising demand by increasing the number of products on its platform. It has also established new agreements with suppliers and launched a service for Amazon Prime users.
These growth initiatives should help support the company’s growth next year.
The outlook for the Deliveroo share price
Looking at the company performance over the last 12 months, I think Deliveroo’s top line and order volume will continue to expand in 2022. What is more challenging for me to determine is how the business’s bottom line will evolve, given the enterprise’s cost challenges.
The group has always relied on self-employed couriers to deliver its products. But the legal environment for these workers is shifting.
Policymakers are moving ahead with changes, both in the UK and EU, that will alter the rights of these workers. This could have a significant impact on the corporation’s cost base. If it is forced to pay an hourly minimum wage, sick pay and offer time off, costs will jump.
It is difficult to tell if the business will be able to pass these costs on to consumers. That is the reason why I think the Deliveroo share price has been under pressure during the past few months. If there is one thing the market hates more than anything else, it is uncertainty. Right now, there is a heck of a lot of it clouding the company’s outlook.
Opportunities and risks
Considering the opportunities and risks Deliveroo is dealing with, I am cautiously optimistic about the outlook for the stock in 2022.
When the company IPO-ed, I was worried it could not maintain the growth rate reported in 2020 as the world opened up. The enterprise proved me wrong. As such, I think there is a chance it will be able to navigate the challenges currently facing the food delivery industry and come out on top in 2022.
If the company can prove its doubters wrong, I think the Deliveroo share price could outperform next year. Still, I am not willing to go all-in on the business just yet. That is why I would limit the position to a speculative holding in my portfolio.
If the enterprise does charge ahead in 2022, I can always add to my holdings.
The post What’s in store for the Deliveroo share price in 2022? appeared first on The Motley Fool UK.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Deliveroo Holdings Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
