Shares of ride-hailing LYFT fell more than 16% in January.
As Lyft reports its fourth quarter earnings on Feb. 8, the stock is likely to be choppy.
Long-term investors may want to consider investing around current levels.
Shares of ride-sharing platform Lyft (NASDAQ:) are down 16.3% since early 2022. In comparison, its biggest rival Uber (NYSE:) is down 16.0%. At the same time, the share fell by 8.7% in January.
What a difference a year has made in the stock prices of some of these former Wall Street treasures. On March 18, 2021, LYFT stock passed $68 and reached an all-time high.
More recently, however, on January 28, 2022, the stock saw a 52-week low at just $34, closing the week at $35.75. The 52-week range was $33.94 – $68.28, while Lyft's market cap (cap) is $12.2 billion.
In the US, Lyft and Uber dominate the ride-hailing market with market shares of approximately 30% and 70%, respectively. Both companies came under a lot of pressure in 2020, especially in the early months of the pandemic when the lockdowns were in place.
As the vaccine rollout picked up steam in 2021, they both reported rising revenues. Still, long-term investors are hesitant to keep these two stocks in their portfolios. As a result, LYFT lost nearly 20% in the past 12 months and UBER stock fell more than 30%.
Investors are now wondering what the future may hold for both names. Today's article takes a closer look at Lyft stocks.
Lyft's Q3 Results
Lyft released Q3 finances on November 2. Revenue of $864.4 million was up 73% (YOY). A year ago, it was $499.7 million in the third quarter of 2020, a 73% year-over-year increase.
The infamous heavyweight had more than 18.9 million active riders during the quarter, up from 12.5 million a year ago. Meanwhile, sales per active rider reached $45.63. In the third quarter of 2020, it was $39.94.
Adjusted EBITDA for the quarter was $67.3 million, marking the company's second consecutive quarterly profitable adjusted EBITDA. Finally, adjusted net income was $17.8 million. A year ago it was -$280.4 million.
On the results, (now former) CFO Brian Roberts quoted: “In the third quarter, we had record sales per active rider as ride frequency increased. We also hit another all-time high contribution margin…”
Lyft will report its fourth quarter results on Tuesday, February 8 after market close. Management expects fourth quarter revenue to be between $930 and $940 million and adjusted EBITDA to be between $70 and $75 million.
Before the release of the third quarter results, Lyft stock was about $45. A week later, on Nov. 10, it went over $57 and reached a multi-month high. But that price is now in the rearview mirror as LYFT shares are currently swapping hands at $35.75.
What to expect from Lyft Stock analysts polled via Investing.com, LYFT stocks have a "outperform" rating.
Chart: Investing.com
Analysts also have a median 12-month price target of $68.47 for the stock, representing an increase of approximately 91% from current levels. The 12 month price range is currently between $38 and $95.
On the other hand, according to some valuation models, such as those that may consider P/E or P/S multiples or terminal values, the average fair value for LYFT stock through InvestingPro is $41.35.
Source: InvestingPro
In other words, fundamental valuation suggests that stocks could only rise by about 15.5%.
We can also look at the financial health of Lyftas determined by ranking more than 100 factors relative to peers in the industrial sector.
Source: InvestingPro
In terms of cash flow, earnings, relative value and price momentum, Lyft scores 1 out of 5. As a result, the overall score of 1 indicates a weak performance ranking.
Currently Lyft's ' P/B and P/S ratios are 8.2x and 4.3x. By comparison, those stats for his peers stand at 2.4x and 2.4x. And the numbers for Uber are 4.9x and 4.6x. In other words, despite the recent correction in Lyft stock, it doesn't necessarily offer much value yet.
However, recent research shows:
"The market size of ride-sharing is projected to be approximately $344.4 billion by 2030, growing at a compound annual growth rate (CAGR) of 16.7% from 2021 to 2030."
Therefore, we can expect long-term investors to benefit from the significant declines in both Lyft and Uber shares. But in the coming days, as Lyft gears up to release its third quarter financials, the stock could still be choppy and come under further pressure.
Lyft bulls that are not concerned about short-term volatility may want to consider capitalizing on the declines. Their target price would be $41.35 which is the fair value stated by InvestingPro.
As an alternative, investors may want to consider purchasing an exchange traded fund (ETF) that holds LYFT stock. Examples include:
ProShares On-Demand ETF (NYSE:)
ETFMG Travel Tech ETF (NYSE 🙂
SPDR S&P Transport ETF (NYSE 🙂
Vanguard Mid-Cap Index Fund ETF Shares (NYSE:)
Finally, investors who believe that the decline in LYFT's stock is coming to an end should consider selling a cash-backed put option – a strategy we use regularly. Because it concerns options, this setup is not suitable for all investors. who want to receive premiums (from put sales) or potentially own LYFT stock for less than their current market price of $35.75.
This strategy may be appropriate if investors are currently somewhat optimistic or neutral about Lyft stock. Selling cash backed put options on LYFT would generate income as the seller receives a premium.
For example, if investors sold the $32.50 strike put that expires March 18, they could collect about $2.05 in premium. Therefore, the maximum return to the seller at maturity would be $205, excluding trading commissions and fees, if the option expires worthless.
But if the put option 'in the money' (meaning Lyft's stock is below the $32.50 strike price) before or upon expiration on March 18, this put option can be assigned.
The put seller would then be required to purchase 100 shares of Lyft at the put option's strike price of $32.50 for a total of $3,250 per contract. In that case, the trader ends up owning Lyft stock for $32.50 per share.
If the put seller is allocated LYFT stock, the maximum risk is similar to that of stock ownership (in other words, the stock could theoretically fall to zero), but is partially offset by the premium received ($205 for 100 shares).
The breakeven point for our example is the strike price ($32.50) minus the option premium received ($2.05), i.e. $30.45. This is the price at which the seller would lose money.
Cash-secured put selling is a fairly more conservative strategy than buying a company's stock at the current market price. This could be a way to take advantage of any hiccups in Lyft's stock in the coming weeks, especially around the earnings release.
Investors who end up owning LYFT stock as a result of selling puts may further consider setting up covered calls to increase the potential return on their stock. Thus, selling cash-backed puts could be considered the first step in owning stock.
Starting point
Shares of the ride-hailing group Lyft are a long way from the all-time high of $68.28 in March 2021. Wall Street isn't fully convinced that Lyft will likely leave the pandemic easily behind to regain robust shareholder value. to create.
January was a bad month for broader markets, including growth stocks. As a result, Lyft stock now offers better value for long-term investors. Therefore, interested readers with a time horizon of two to three years should consider buying the dip in LYFT stock.
