Although 2020's been a challenge for the economy and many stocks have struggled, for some companies, it's been a terrific year. One stock that's been soaring this year is Facedrive Inc Is (TSXV:FD). The company offers a ridesharing platform and it's also into food delivery. Although Facedrive's still fairly small, generating just $599k in fiscal 2019, investors are seeing a lot of potential.
Things really took off in May when Facedrive announced that it was looking to acquire assets of food-delivery company Foodora.
Food delivery is rising in popularity as restaurants are still not operating anywhere near capacity and people are staying at home. Prior to the release of the Foodora news, Facedrive was trading below $10 a share and now it's up over $15. Year to date, Facedrive's up an incredible 562%, making it one of the hottest stocks on the TSX this year – it began 2020 at just $2.30.
The problem is that Facedrive's valuation has now skyrocketed to obscene levels; Investors who buy the stock are paying 330 times book value for Facedrive and more than 2,000 times the revenue it has generated in the past year.
Investors have to be careful not to get caught up in the hype. While food delivery will help generate sales growth for Facedrive , it's also a very competitive space. With Uber Eats, Skip the Dishes, and Door Dash to compete with, there are many companies vying for market share in the food delivery space. And with the country in a recession, there may be fewer people ordering out.
Facedrive is a stock that could be in danger of seeing a big correction later this year, especially if its sales growth proves to be underwhelming.
