Not only is the San Francisco ride-share company a volatile growth stock – a group that investors often sell first in bad markets – but many investors are nervous that potential riders will stop sharing taxis to avoid the coronavirus. And the stock’s been caught in the general broad-market downdraft.
But two analysts suggest that the company is doing better than ever, and they say the stock now trades too cheaply to ignore.
J.P. Morgan’s Douglas Anmuth wrote in a note Wednesday that "while there has been considerable concern around the impact of covid-19,” Lyft said that “U.S. ride-share remains strong, is less impacted than other areas, and management reaffirmed its first-quarter outlook.”
Lyft, Anmuth says, is also on track to add riders and grow revenue per rider near a 20% year-over-year pace.
"Lyft had its biggest week ever last week in terms of rides and revenue and remains confident in its first-quarter 2020 outlook,” the analyst said.
Piper Sandler analyst Alexander Potter is also on board.
"We have sensed an increased amount of bearish sentiment around ride-hailing companies in recent days, with investors beginning to wonder if consumers may avoid hailing vehicles on the Lyft platform” due to the coronavirus, he wrote. But "last week was the best week in the company's history, potentially due to consumers shifting ridership away from public transit.”
On the cost side, analysts say Lyft is still finding ways to lower driver-insurance costs without losing drivers. That cost, roughly half of revenue, is one of several expense items all ride-sharing companies need to drive down to reach profitability.
Anmuth did estimate that 10% of Lyft’s total rides are to airports, which should fall on account of the virus. He lowered his second-quarter revenue estimate (Q1 earnings upcoming) by 4% to $1.15 billion.
But partly due to strong revenue checks, Anmuth raised his third-quarter revenue estimate by 4% to $1.22 billion. This leaves his full-year estimate little changed.
Anmuth noted that Lyft now trades at 2.6 times expected revenue for the next 12 months, a low valuation compared to most growth stocks at Lyft’s stage in the game. He values Lyft at 5 times revenue, with a price target of $85, representing more than a doubling from here.
Uber, which is much larger than Lyft, presents a key risk to Lyft’s effort to gain market share.
Investors sometimes pay a premium to own Uber, which has growth rates and cost structure similar to Lyft’s but also has other fast-growing business, like Uber Eats and logistics. Uber currently trades at 3.2 times 2020 revenue estimates. Still, Uber investors fear Lyft is catching up to Uber in market and growing faster. Meanwhile, Uber's new businesses are losing money and in their very early stages.
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