Still standing despite a drubbing, Grubhub (NYSE: GRUB) lost stock value at a headline-making rate over the past year, but managed a tasty boost to its sales. Analysts think a merger with Amazon (NASDAQ: AMZN) or Uber (NYSE: UBER) could turn Grubhub into a stock market dynamo again, considering that several metrics remain notably positive. Successful food delivery mergers in Germany strongly suggest the analysts are right -- but a recent class action lawsuit against Grubhub could still spoil the soup, meaning investors should stay cautious until an actual merger offer appears. Grubhub's advertising strategy The food delivery specialist still displays some strong metrics despite Grubhub's share price dropping approximately 70% since its 2018 peak. Using a heavy promotional push, it boosted its number of "active diners" in Q3 from 16.4 million to 21.2 million – a 29% year-over-year jump. Gross food sales in Q3 rose 15% year over year to $1.4 billion. In his Oct. 28 Grubhub shareholder letter, CEO Matt Maloney defended his focus on advertising. He cited the company's increasing adjusted EBITDA per order, which rose from $0.98 in Q4 2018 to $1.28 in Q3 2019 – a 31% profit increase per meal. Maloney's arguments remained somewhat vague, but he suggested that Grubhub's large-scale marketing served as an advertising substitute for smaller partners, allowing them to sell more profitable meals efficiently while incurring lower overhead costs. IMAGE SOURCE: GRUBHUB The added expense of Grubhub's strategic choices took an admittedly large bite out of margins. In Q3 2018, the company served up a juicy $22.7 million in net income, amounting to $0.24 per diluted share, which helped to explain its soaring stock price at the time. In 2019, the company's marketing outlays and other expenses slashed Grubhub's Q3 net income to $1.0 million, just $0.01 per share. Maloney argues the company will "grow into" its advertising outlays during 2020, causing a rebound in margins. Why a meal-delivery merger might work Many leading analysts condemn Grubhub's expensive marketing strategy, however, calling for a merger with another company instead. Barclays supported this viewpoint, while upgrading the company's rating from "sell" to "strong buy." The analysts suggest the company look to combining with Uber or Amazon to cut the fat and leverage efficiencies to boost profits and stock market price. The example of Takeaway.com (AMS: TKWY) and Delivery Hero (ETR: DHER) in Germany suggests they're right; the $1.1 billion merger powerfully benefited both companies. Takeaway.com (the equivalent of Amazon or Uber in the current situation) gained Delivery Hero's large sales territory and infrastructure, while Delivery Hero (the analog to Grubhub) got massive financial backing and reduced many of its internal inefficiencies. Shares of Takeaway.com and Delivery Hero rose 24% and 14%, respectively, as soon as they announced the merger in 2018, then soared approximately 55% and 67% between Jan. 1, 2019 and early December 2019. A similar jump in Grubhub's stock would bring it back to 2018 levels, strongly rewarding investors. The legal fly in the soup Though a merger offers high odds of restoring Grubhub's fortunes, an ongoing class action lawsuit alleges that the company's meteoric stock rise resulted mostly from false and misleading claims. Among other data, it cites Yum! Brands's (NYSE: YUM) purchase of $200 million in Grubhub shares. This large-scale purchase right before Grubhub's share price decline eventually led to Yum! writing down its investment by $60 million in 2019, allegedly directly causing a $0.37 loss in Yum!'s own earnings per share. Since Yum! owns brands like Pizza Hut, KFC, and Taco Bell, the class action suit clearly includes plaintiffs with clout and could prove costly. Of course, if a merger went ahead anyway and Grubhub's share prices climbed to 2018 highs, this would prove the company's original valuation correct and largely demolish the suit's basis. Reasons to wait and see Grubhub's current situation sends mixed investment signals indicating caution is in order. The company still dishes up some savory fundamentals, while showing itself resilient in the face of food delivery market structural problems. The example of the Takeway.com and Delivery Hero merger provides strong objective evidence that a merger would probably be the recipe for turning Grubhub into a gourmet investment again. However, the class action lawsuit and current management direction make a merger somewhat more unlikely. Those with a position in Grubhub may want to keep their stocks in light of its relative continuing strength. If you're a potential first-time buyer of Grubhub shares or are mulling increasing an existing position, a cautious, moderate approach seems wisest until actual merger plans become public. That event – if it arrives – would signal that Grubhub will probably start serving up its special stock market sauce again, becoming a strong buy before prices skyrocket back to their 2018 levels or higher. 10 stocks we like better than GrubhubWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.* David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Grubhub wasn't one of them! That's right -- they think these 10 stocks are even better buys. See the 10 stocks *Stock Advisor returns as of June 1, 2019 John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rhian Hunt has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Grubhub and Uber Technologies. The Motley Fool has a disclosure policy.Source