A triple top pattern has emerged in the chart of Grubhub Inc. (GRUB). This is a bearish pattern and the support level is broken, GRUB could experience a breakdown.
GRUB provides an online takeout food platform for diners and restaurants. The firm generates revenue by charging restaurants a commission based on each order amount and charges consumers a delivery fee for orders where the firm handles the delivery.
The company has benefited from the shift to online food ordering, driven by the pandemic and the needs of millennials. Restaurants are also signing up to reach new customers. At the end of the fourth quarter, the company had more than 300,000 restaurants on its platform.
Yet, GRUB is facing significant competition from companies such as Uber (UBER) Eats and DoorDash (DASH).
As of the end of the most recent quarter, the company had $467 million in cash, compared with no short-term debt.
GRUB saw its sales rise 26.3% over the past year. Revenue is expected to increase 44.8% in the quarter and 32.1% next quarter. Its stock appears quite overvalued though, with a forward P/E of 208.33. Its stock is also in a downtrend, leading to a Momentum Grade of D in our POWR Ratings system.
Take a look at the 1-year chart of GRUB below with added notations:
GRUB had been trending higher since last March, but now seems to be forming a triple top price pattern (red). Triple tops are patterns where an asset rallys up to approximately the same point on (3) different occasions (T), while finding similar support (green $67) twice in between the tops. This is a reversal pattern that signals a stock may no longer be rallying.
A trader could enter a short trade in GRUB if the $67 support level is broken with the expectation for a breakdown in the stock.
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GRUB shares were trading at $70.28 per share on Friday morning, down $0.09 (-0.13%). Year-to-date, GRUB has declined -5.37%, versus a 4.68% rise in the benchmark S&P 500 index during the same period.
About the Author: christian
Christian is an expert stock market coach at the Adam Mesh Trading Group who has mentored more than 4,000 traders and investors. He is a professional technical analyst that is a certified Chartered Market Technician (CMT), which is a designation awarded by the CMT Association. Christian is also the author of the daily online newsletter Todays Big Stock. More...
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