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Sunday, February 5, 2023

Lyft Stock Is Primed To Rise But That’s No Reason To Jump In

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Lyft (NASDAQ:LYFT) stock is one of two names, along with Uber (NYSE:UBER), which dominate the ride-share sector. Pundits consider Lyft to be the ‘pure-play’ between the two as it is solely focused on transporting people. Some analysts point to this as being a factor for choosing to invest in shares of Lyft over Uber. However, both stocks exist in an industry which has an unproven business model from the standpoint of profitability.

Liquidity Will Give Lyft Stock a Post-Virus Boost

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Nevertheless, investors are still attracted to the young businesses. Lyft, which had its IPO just last year, saw initial interest drop off immediately following the IPO and has yet to regain those initial losses. Lyft was clearly highly touted and likely overvalued at its IPO. Investors are now hoping that the young company can increase its operational efficiency as time passes. Because while Lyft’s services are well-regarded, its operational losses have been significant. That said, shares of Lyft will likely rise given the current environment. However, I think it is still a stock to avoid. 

Lyft’s Stock Follows Sector Trends

Ride-sharing, Transportation as a Service (TaaS), or whatever term Wall Street has coined for this newest iteration of taxi service, may just be a stock class to avoid for some time. Consumers rave about Lyft and Uber justifiably. Customers of Lyft and Uber save money in most instances vis-a-vis taxis. But the operations of these companies are much less laudable.

Lyft has not proven profitable which should concern investors. In many respects, its operations are upside down. The firm’s most recent 10-Q, which ended March 31, was pretty dismal. Total revenue increased 23% , compared to the same period last year, to $955.7 million. Sounds great. Yet, Lyft ended the quarter with an operational loss of $414.1 million. 

Shares of Lyft Have Never Been Strong

Potential investors who grant Lyft the benefit of the doubt given the pandemic, beware. Lyft recorded a net loss of $1.138 billion in 2019. So, this most recent earnings report was not a fluke attributable to externalities. It is part of Lyft’s fundamental underpinnings. This is also why Lyft’s been trading lower than its IPO for the entirety of its existence. While it is a growth stock and thus shouldn’t operate with ultra-high efficiency, Lyft appears operationally weak by most standards. 

But even with that said, investors can probably expect Lyft shares to rise in the near-term. Simply put, more people will be hailing ride-shares in the remainder of this year even with virus spikes because the economy is opening up. If this pandemic has taught investors anything, it’s that people will pile into the markets on the slightest positive news. Both macro-trends and underlying business fundamentals seem to correlate much less with stock price movements than might be expected. 

Investors Into Lyft Will Still Take The Plunge

Lyft shares currently sit around $35. As the economy opens up I wouldn’t be the least bit surprised to see shares rise by $10 to $12 and approach pre-pandemic levels. Investors are going to buy shares of Lyft based on transportation numbers. The price will rise and then it’s going to decrease as most investors will analyze their shares’ fundamentals post-purchase and not prior. But I think shares will fluctuate around $45 for a few months. 

Why Lyft Should Be Avoided For Now…

This is a bit contradictory because I think Lyft is a sell. So, even though the stock is likely to rise the company fundamentally hasn’t figured out how to be profitable. And fundamentally stocks are an investment in a company and signal that you believe they can take your investment and return you more money. Lyft hasn’t. I think that at some point, markets will take a collective look at ride-share firms and punish them based on their losses. I won’t be interested in Lyft until its partnership with Alphabets (NASDAQ:GOOGL) autonomous vehicle arm Waymo, bears some fruit. Then, the company will have a much clearer path to profitability as driver expenses will be gone. Until then, I think it’s going to be flat and nowhere near IPO levels. Lyft provides a great service, and a great way to make some money driving as a side-hustle, but as a stock I’m not buying it. 

As of writing Alex Sirois did not own any of the above mentioned stocks

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