Monday, August 10, 2020

Are Marley Spoon shares future ASX blue-chips?

Blue chips falling

The Marley Spoon AG (ASX: MMM) share price has had an amazing run in the last 3 months, with the company’s share price surging more than 868% since mid-March. The change in consumer behaviour during the lockdown period has benefitted the company, as many customers have opted to bypass supermarkets and move online.

So, if these positive trends and tailwinds continue, does Marley Spoon have the potential to become a blue-chip company in the long-term?

Demand fuels expansion

According to an article in the Australian Financial Review, Marley Spoon has signed a 10-year lease to take a 14,200 square meter space at a logistics facility being built by Charter Hall Group (ASX: CHC). The company is looking to expand its operations in order to make its supply chain more efficient after experiencing unprecedented demand during the coronavirus pandemic.

Marley Spoon’s management noted that there has been a fundamental shift in consumer shopping habits, with more shoppers going online for convenient and affordable options. According to management, a larger purpose-built facility will allow further automation and efficiency, whilst also allowing Marley Spoon to expand its offerings and services.

The new facility follows Marley Spoon’s recent completion of a $16.6 million capital raising in order to strengthen the company’s balance sheet and fund continued global expansion.

What’s the outlook for Marley Spoon?

Marley Spoon is the second largest subscription-based meal-kit provider in Australia. The company delivers fresh ingredients to customers in Australia, the United States and Europe. In its most recent trading update, Marley Spoon reported unprecedented demand for its services during the pandemic. As a result, the company saw a 46% increase in revenue for the first quarter and estimates that 7.5 million meals were delivered during that period.

Global market research company Nielsen reports there is a growing consumer appetite for meal kits in Australia with annual sales in the sector over $300 million, growing at a rate of 40% compared to 2018. Marley Spoon is well poised to benefit from this trend, especially after the company signed a $30 million, 5-year strategic partnership with Woolworths Group Ltd (ASX: WOW) last year.

Will Marley Spoon become a blue-chip?

Without a long-term track record of growth and profitability, I think it would be too bold and presumptuous to assume that Marley Spoon could become a blue-chip. In the short-term, it is more likely to be a takeover target for larger companies and conglomerates that are interested in expanding into the delivered food services. However, there is no denying the potential for Marley Spoon given the growth potential in the sector and the leverage provided by its strategic partnership with Woolworths.

More reading

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Are Marley Spoon shares future ASX blue-chips? appeared first on Motley Fool Australia.

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