Just Eat and Tesco could still help you retire early

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A lot of investors have gone off their food lately, as the thought of investing in Just Eat(LSE: JE) makes them feel a bit queasy. Are they being a bit too picky?

Eat that!

The fast food delivery pioneer has hit a few potholes but its share price is still rattling along, up 20% in the last three months, and by 8% in the last four weeks. Earlier in the summer, all the talk was about dumping the crashing Footsie champion, but now investors are thinking again.

Just Eat was hit by fears of tough competition from rival Deliveroo, which recently announced ambitious expansion plans. However, others have suggested that Deliveroo will help to expand the market, normalising fast food home delivery and bringing in new customers. Just Eat still has first mover advantage, with Deliveroo and Uber Eats still playing catch-up.

Get an "oo" from Deliveroo

The other worry is that Just Eat has to invest £50m this year to develop delivery solutions for branded restaurants such as KFC and Burger King, which have no capability of their own. Deliveroo and Uber have already taken a bite of this market, so Just Eat is the one playing catch up here.

Yet investors should remind themselves that Just Eat generated a 42% rise in underlying EBITDA to £164m in 2017, with revenues up 45% to £546m. Its investment plans should drive up revenues to around £660m-£700m, although EBITDA will idle at around £165m-£185m.

However, I think the wider delivery market will continue to grow and City analysts are predicting Just Eat's earnings per share (EPS) will rise 10% in 2018, and 29% in 2019, although its forward valuation of 45.8 times earnings is a little hard to swallow.

Lewis gun

Grocery giant Tesco(LSE: TSCO) is a £25bn business that is climbing at the rate of a micro-cap technology stock, up 45% in the past 12 months. The worry is that you have left it too late to hop on board, although my Foolish colleague Royston Wild recently made a valiant attempt to assure latecomers that the party still has some way to run, saying it appears to offer incredible value to share pickers.

Tesco has been boosted by its wholesale acquisition Booker, and has now posted 10 consecutive quarters of like-for-like sales growth. Online shopping is also performing strongly, measured by both transactions and basket size. CEO Dave Lewis has injected plenty of momentum into the business since 2014, impressive given moribund consumer sentiment.

Take a bite

You even get a dividend, the current yield of 2% covered 2.7 times. Earnings growth is forecast to slow, but from dizzyingly high levels. In 2017 and 2018, Tesco posted EPS growth of 65% and 57%, respectively. This is forecast to fall to 19% in 2019 and 20% in 2020, but that's still more than respectable.

Tesco's current P/E is a dizzy 38 times earnings but the forecast valuation is just 17.4 times. The first figure scares me, the next one not so much. Share price growth at both Just Eat and Tesco is likely to slow after their recent spurt, but they still look good to go.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat and Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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