Is Olo Stock A Buy After Its IPO?

It currently has 400 brand customers representing over 64,000 active locations across the United States. Right now, it is helping restaurants to process and deliver more than 1.8 million meals per day.

The pandemic has changed the restaurant business, and some of those changes are permanent. Whether pick-up or delivery, off-premises dining will be the chief driver of growth for the industry over the next five years. That growth should benefit Olo as a leading purveyor of order and delivery software services.

Does that mean we should buy the stock at current levels?

Is Olo Stock a Buy Right Now?

As interesting a story as Olo is, it's probably not a buy at the current price. Restaurant software is a crowded and competitive industry, and you can expect there will be new entries. The success of the IPO will bring attention to the industry, and new competitors will emerge into an already crowded field.

While Olo had a successful IPO, we already see the stock pulling back somewhat. On Friday morning, the stock fell below $30 as selling pressure began to exceed buying interest. The deal had priced at $25, which is well above the original price range of $16 to $18, so it looks as if potential buyers have little interest at current prices.

When we consider the valuation of Olo, it is hard to make a case for owning the stock at current levels. The company has revenue in 2020 of $98 million and profits of a little over $3 million. The current stock price values the company at over $4 billion, which is a fairly hefty valuation.

Olo has a good business, but it is also a very competitive business. It has a solid customer base, but the challenge will be to continue to grow that base to include more of the better-known and more widely utilized national chains.

While we do not suggest running out to buy the stock right away, Olo will be a stock worth keeping an eye on going forward. It is a huge industry, and while the market for ordering software is highly competitive, it is also very fragmented. There is no clear market leader at this point, and Olo may have an opportunity to grow into that leadership role.

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