EP103: Market Shakeups & Hidden Value—12 Stocks to Watch Now
Stock Ideas From Investment Professionals
Welcome, subscribers!
We’re back with another round of intriguing stock ideas—featuring companies unlocking hidden value, compounding earnings at high rates, and rebounding from temporary headwinds. This week’s lineup spans food delivery, semiconductor materials, infrastructure software, IT services, and consumer brands, offering a mix of high-growth disruptors, deep-value plays, and overlooked market leaders.
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This week, we are happy to share 12 new ideas, including:
A global food delivery platform where investors may be getting significant parts of the business for free.
A staffing company making a return to an investment portfolio after a strategic acquisition and a sharp share price drop.
A diversified commodity-focused business trading near a decade low with a potential catalyst from improving industry margins.
A trucking company that has deleveraged significantly and is emerging from a cyclical downturn.
A semiconductor materials supplier poised for strong earnings growth as industry trends normalize.
A growing IT solutions provider expected to capitalize on a rebound in tech spending.
A high-margin, all-flash data storage company gaining traction in the hyperscaler market.
A modular space and storage solutions business with stable revenue streams and long-term pricing power.
A niche healthy snack brand scaling up its production capacity and expanding its market footprint.
Disclaimer: Nothing here constitutes professional and/or financial advice. You alone assume any risk with the use of any information contained herein. We may own positions in the securities listed. Please do your own due diligence.
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Let’s get to it.
Greenhaven Road Capital started a new position in Delivery Hero (DHER), the German-headquartered food delivery company. Their thesis is quite simple: the market is giving multiple pieces of the business away for free. Greenhaven provides much more depth in their latest investor letter, which we include below.
Delivery Hero (DHER) – New Purchase
A simple thesis underlies this complex business: The market is giving us large, profitable pieces of Delivery Hero for free. Delivery Hero is the “world’s leading local delivery platform operating marketplace, own-delivery and dark store businesses.” Delivery Hero has the #1 food delivery app in over 50 countries and >90% of their gross merchandise value (GMV) is from countries where they are #1. The delivery app industry tends to coalesce around one or two winners in each market as consumers want selection, low cost, and fast delivery, which the largest players are best positioned to provide. Similarly, restaurants want to reach a broad audience and will gravitate towards the platforms driving the most business.
As food delivery apps have evolved, two trends have emerged that are worth highlighting. The first is that the platforms that control their own delivery have tended to “win,” as they are able to better satisfy customers who ultimately want food delivered quickly and hot when it arrives at their door. The second trend is the addition of “quick commerce” where the apps allow you to order more than just food, typically providing access to a large number of vendors such as grocery stores, pharmacies, beauty products, etc. The addition of quick commerce orders increases utilization of the delivery networks, provides an additional revenue stream, and drives higher frequency of purchases from users. The need to control delivery and offer more than food from restaurants dramatically increases the complexity of these businesses. This is not as simple as throwing up a website and accepting credit cards. Operations are complex, scale matters, and density matters.
Analyzing Delivery Hero is difficult as they operate in 72 countries across multiple business lines. The company is suppressing profits by investing to grow the business. In addition to different markets being in different phases of growth, the company also operates in different competitive landscapes. In some countries Delivery Hero is dominant, in others it is engaged in expensive dog fights to capture market share. For a long time, Delivery Hero fell into the “too hard” pile.
In the second half of 2024, Delivery Hero began to reveal the economics of some of their markets. More importantly, the company recently listed its Talabat division, which serves the Middle East region including the UAE, Kuwait, Qatar, Bahrain, Egypt, Jordan, Oman, and Iraq. As a result of listing Talabat, Delivery Hero raised just under $2B and cut its debt in half, effectively taking any short-term debt issues off the table. The listing also highlighted just how good of a business Talabat is and how good a scaled food delivery business can become.
In round numbers, Delivery Hero has a market capitalization of €8.7B, plus another €2B in debt for an enterprise value of €10.7B. Against that enterprise value, Delivery Hero retained just under €8B of Talabat stock. Talabat is a small piece of the overall business, representing approximately 15% of revenue/GMV. This dynamic of getting most of Delivery Hero for “free” raises 3 possible scenarios. The first scenario is that Talabat stock is wildly overvalued, making any sum of the parts valuation inaccurate. The second scenario is that the remaining 85%, non-Talabat business is being accurately reflected in the current combined valuation. The third scenario is that the €10.7B enterprise value above reflects a mispriced security and we could make real money over time by owning Delivery Hero.
Scenario 1 – Talabat is wildly overvalued: This does not appear to be the case. Talabat generated over $400M in operating cash flow in 2024 while growing revenues and GMV in excess of 20%. Talabat is expected to grow both cash flow and revenues at a similar rate in 2025. I would argue that, for a fast-growing business with operating leverage, trading at 20X trailing operating cash flow is not wildly mispriced. In fact, I think there is a very reasonable case to be made that it is undervalued.
Scenario 2 – The remaining 85% of the company is overvalued at under €3B: I would point out that Uber offered $950M – just under 1/3 of this €3B stub value – for Delivery Hero’s Taiwan business. The Taiwan business is less than 5% of DHER’s remaining non-Talabat GMV. The Uber deal was scuttled for regulatory reasons, but its existence would imply that the market is ascribing just ~€2B in value to Delivery Hero’s remaining business, excluding Talabat and Taiwan. This implied valuation encompasses subsidiaries that hold the #1 market share in countries such as South Korea, Italy, Greece, Argentina, and Turkey. South Korea alone generated approximately $500M of adjusted EBITDA in 2024. Assembling a mosaic of these facts, I don’t think the remaining 85% is worth just under €3B or the remaining 80% (excluding Talabat and Taiwan) is really worth less than €2B.
Scenario 3 – We Make Real Money: Delivery Hero certainly has challenges, including stiff competition from Coupang in South Korea and Meituan in Saudi Arabia. The company is also navigating labor law issues in the EU and the failed sale of the Taiwan business, but I believe this is a business headed in the right direction. In the last letter we discussed companies engaging in “self-help” and the successful listing of Talabat and the attempted sale of its Taiwan business demonstrate that Delivery Hero falls into this bucket. In addition, the company has dramatically reduced losses over the past four years and has guided to being free cash flow positive for 2024.
Delivery Hero is trading at less than 10X 2025 EBITDA, a figure that is growing 50%+. We have the opportunity for all 3 engines of share price returns to fire here – revenues can grow double digits, margins are improving much faster, and we can get multiple expansion on both the listed Talabat shares and the remaining Delivery Hero business. I believe we have the opportunity to make multiples of our money as the business grows and if multiples expand.
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