In a sign of how much market sentiment has turned against growth and technology stocks, Deliveroo Holdings PLC (LON: ROO) shares crashed on the first day of listing.
The UK food delivery giant's initial public offering (IPO) was much anticipated as one of Europe's biggest this year, with shares snapped up for £3.90.
But when they started trading on the London exchange overnight, they immediately fell 30%.
The stock recovered slightly to end a wild first day on £2.87, which is still more than 26% down on the IPO price.
Investors boycotted Deliveroo's IPO
Food delivery cyclists with the familiar aqua warmer bag on their backs have become ubiquitous in both the UK and Australia.
But recent concerns over labour relations scared away some investors during Deliveroo's IPO, despite its famous brand name.
"Several influential institutional investors declined to participate in this IPO. They included Aviva, Legal & General, and Aberdeen Standard. They expressed concern over Deliveroo's employment practices," said The Motley Fool UK's Cliff D'Arcy.
"They also disliked dual-class shares that hand extra votes to co-founder Will Shu for a further three years. Hence, they declined to invest in the eight-year-old business."
Deliveroo did not reply to The Motley Fool's request for comment.
Even at the IPO price of £3.90, some experts already thought Deliveroo was overvalued for a business that's still incurring huge losses.
Hargreaves Lansdown analyst Sophie Lund-Yates compared Deliveroo's valuation to the owner of Menulog, Just Eat Takeaway.com NV.
"A market cap of £7.6 billion means the company's worth 6.4 times last year's revenue, which is some way above rival Just Eat's 4.8 times."
'Terrible economics': why Deliveroo is not a tech company
Both D'Arcy and Royston Wild of The Motley Fool UK recommended staying away from Deliveroo shares.
That's despite Wild's bullish outlook on the British takeaway food sector.
"I fear that the Deliveroo share price still looks too expensive despite today's fall," he said.
"The firm operates in a highly-competitive area, and one in which the issue over workers rights is becoming an ever-hotter potato, which makes this particular UK share too risky in my opinion."
D'Arcy, as a value investor, disagrees with Deliveroo's self-characterisation as a technology business.
"I see an intermediary or distributor in an ultra-competitive market. It may have a snazzy app and website, but the hard work is done by roughly 100,000 'independent contractors'," he said.
"If Deliveroo had to pay the minimum wage to those delivery drivers as employees, I struggle to see how it would overcome the terrible unit economics of home delivery."
