Mad Money

GrubHub stock, food for thought?

GrubHub CEO: Competitor is paper menu

(Click for video linked to a searchable transcript of this Mad Money segment)

Jim Cramer was a fan of buying GrubHub on the IPO. But considering shares spiked in the first days of trade and then turned lower, what now?

If you're not familiar with GrubHub, "It's an online platform for mobile takeout," the "Mad Money" host explained.

That is, by visiting the company's website or through its app, people can order food from some 29,000 takeout restaurants in more than 700 U.S. cities and London.

"They take a 13 percent commission on every order placed through their platform, and given that they generated over $1.3 billion in gross food sales last year, that really adds up," Cramer said. "It's just a terrific concept."

Foodcollection | Getty Images

However, just because a company has a great concept, doesn't mean shares won't fall. That's just what happened here.

"If you were able to get in on the IPO back in early April, the stock gave you a quick 40 percent gain the moment it started trading," Cramer said. "But, like so many other IPOs, it's declined since coming public. Currently, GrubHub is down 22 percent from the highs of $40 where it opened on its first day of trading, and down nearly 9 percent from where it closed that day, at $34."

And even with the decline, shares continue to command a significant multiple. "It's trading at 72 times next year's earnings estimates and 8.7 times next year's sales," Cramer said.

That's a significant multiple and lately the market has not embraced stocks that trade at significant multiples.

Nonetheless, looking at future potential, there appears to be every reason for optimism.

Read more from Mad Money with Jim Cramer
Avoid Apple, embrace IBM, say charts
5 reasons to trade in underwear and socks
Bearish blinders obscuring positives

". When the company reported a couple of weeks ago, it posted a 5-cent earnings beat off of a 3-cent basis and delivered 50 percent revenue growth, substantially higher than expected, not to mention a 188 percent increase in earnings before interest, taxes, depreciation and amortization," Cramer said.

In situations such as these, Jim Cramer often recommends keeping an eye on the stock and watching for strategic points of entry in the future. "The younger demographic loves this company," he said. "And GrubHub has a compelling story."

Eventually, Cramer says, the market will likley respond to these catalysts. But probably not right away; not until high multiple growth stocks come back into favor.

Call Cramer: 1-800-743-CNBC

Questions for Cramer?

Questions, comments, suggestions for the "Mad Money" website?