Massive GrubHub Sell-Off; Here's Why It's Just a 'Hold'

Wunderlich Securities initiated coverage on GrubHub Inc GRUB at a Hold with a $44 price target. The analysts said that GrubHub may struggle to scale beyond its Tier-1 cities, while those cities will face increasing competition from more food delivery options, including other prepared food or grocery delivery.

Wunderlich was bullish on the segment as a whole, noting that the industry is "huge" and "fragmented" and that restaurants face challenges to acquire new customers. As GrubHub, who acquired its main rival Seamless in 2013 to take the major market share, proves the model, Wunderlich argued that the company is more susceptible to competition by "well-funded grocery and prepared food deliverers."

In total, Wunderlich said that the positives – huge market, high customer demand – are offset by the negatives – indirect competition, high valuation – to leave the risk/reward perfectly balanced.