What happened

Shares of food delivery company Grubhub (NYSE:GRUB) soared on Wednesday following a strong second-quarter report. Grubhub beat analyst estimates for both revenue and earnings, and it provided full-year guidance that was above expectations. A price-target boost from an already bullish analyst added fuel to the fire. As of 11:50 a.m. EDT, shares were up 21.4%.

So what

Grubhub reported second-quarter revenue of $239.7 million, up 51% year over year and about $6.7 million higher than the average analyst estimate. The number of active diners on the platform surged 70% year over year to 15.6 million, while daily average deliveries rose 35% to 423,200. Gross food sales jumped 39% to $1.2 billion.

Smartphone displaying the Grubhub mobile app.

The Grubhub mobile app. Image source: Grubhub. 

Non-GAAP earnings per share came in at $0.50, up from $0.26 in the prior-year period and $0.08 better than analysts were expecting. Costs rose slightly slower than revenue, and a substantially lower tax rate helped boost the bottom line.

"We had a standout quarter, highlighted by a record number of new diners trying Grubhub for the first time. We generated robust order growth, while continuing our rapid delivery expansion and adding thousands of high quality new restaurant partners," said Grubhub CEO Matt Maloney.

Now what

Grubhub expects to produce third-quarter revenue between $232 million and $240 million, along with adjusted EBITDA between $58 million and $64 million. Analysts were expecting revenue guidance of $230.6 million.

For the full year, Grubhub sees revenue between $966 million and $983 million and adjusted EBITDA between $256 million and $270 million. That revenue range is above the average analyst estimate of $960.5 million. Grubhub's strong results and guidance led analysts at Craig-Hallum to reiterate a buy rating on the stock while boosting the price target to $160.

Grubhub is growing fast, and it's producing solid profits along the way. But with the company now valued at roughly $12 billion after Wednesday's surge, about 75 times the average analyst estimate for full-year adjusted earnings, the stock is priced optimistically, to say the least. Considering the intense competition and minimal barriers to entry in the food delivery market, investors should tread carefully.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.