After a 40% plunge on Tuesday, Goldman Sachs said it can no longer recommend buying food delivery service GrubHub (NYSE:GRUB).
"We got this wrong," said analysts on Wednesday.
Goldman analysts downgraded GrubHub to neutral from buy and slashed its 12-month price target to $30 from $86. Shares of GrubHub cratered 43% on Tuesday to $31.79 after reporting disappointing third-quarter earnings and giving fourth-quarter guidance well below Wall Street’s expectations.
Not only did Goldman have a buy rating on the food delivery company, but the firm had the company on a list of its favorite stocks, its conviction buy list. Mind you, the stock is about flat since the firm first added it to the list in 2014.
"We significantly underestimated the impact of competitor investments on customer behavior across the space while overestimating both the potential for industry-wide growth and Grubhub’s ability to maintain share," analysts continued.
GrubHub earnings fell short as competition in the food delivery space forces the embattled stock to spend heavily despite losing more than half its value this year. The weak results forced analysts to rethink their ratings, and five firms downgraded GrubHub on Tuesday, including two firms that double downgraded the stock.
GrubHub is honing in on restaurant partnerships and investing heavily in technology. Goldman holds the opinion Grubhub is making the right long-term decisions for the business, but shares may struggle some more.
Shares in GRUB gathered 62 cents, or 1.9%, to $33.73 early Wednesday.
