GrubHub Up And Trending After Analyst Upgrade; But, Trading At Stellar Valuations, Are There More Attractive Mobile Apps Stocks?

GrubHub GRUB is up about 1.5 percent on Wednesday, and stands amongst the most popular stocks on New Year’s Eve. The recently-public $2.9 billion market cap online and mobile platform for restaurant pick-up and delivery orders surged following an analyst upgrade from December 30.

The Ratings

Barrington's Jeffrey Houston boosted his rating on GrubHubon Tuesday, from Market Perform to Outperform, and set a $43 price target. The specialist said that his bullishness was based on the company’s “large and under-penetrated target market along with its deep moat to keep out competition.”

The stock currently trades around $36.40.

Another research firm that likes GrubHub is Goldman Sachs, which upped its rating for the stock, from a Neutral to a Buy, on December 16.

The Valuation

Analyst ratings are not the only thing to take into consideration when acquiring a stock. Other fundamentals should also be taken into account. When looking at GrubHub’s figures, some of the bullishness fades away. The stock trades at about 196 times the company’s earnings and 12.7 times its sales (well above other highly-valued tech companies like Facebook or Equinix), while its margins and returns are not particularly good-looking.

So, are there better-valued options in the mobile apps space?

A Look At The Industry Peers

When investigating GrubHub’s peers, one thing comes to light quite quickly: the mobile app industry is one of high valuations. It’s all about the future, growth and monetization potential, increasing penetration…

But, are there any fairly-valued stocks at all?

Well, many of the other companies in the industry are also quite overvalued in relation to its fundamentals, although some analysts still think that not all of the growth potential is priced in already. Amongst these firms we can count iDreamSky Technology DSKY, trading at 103 times its earnings and 7.4 times its sales; an Cheetah Mobile CMCM, at 196x P/E and 8.3x P/S.

However, there’s a few other companies that seem more attractive from a valuation standpoint:

- TeleNav, Inc. TNAV trades at 1.8 times its sales and 1.4 times its book values, not only below all of its mobile apps industry peers, but also cheaper than most tech stocks. However, I should highlight, its margins and returns are still negative.

- China Mobile Games & Entertainment CMGE is probably the best-looking option from a fundamental point of view. Despite its above average margins and returns (and an industry-leading return on assets), the stock trades at 17.7 times the company’s earnings, 2 times its book values, and 3.5 times its sales.

Currently, only one research firm has a rating for CMGE; it’s Nomura, which issued a Buy rating, with a $32 price target, on late-May.

The stock currently trades below $18 per share.