Stock Analysis & Ideas

Doordash Stock: More than a Pandemic Darling

Shares of food-delivery service giant DoorDash (DASH) have been treading water of late, now off more than 70% from their highs of around $257 per share. Undoubtedly, DASH stock probably never should have surged that high amid the euphoric frenzy that drove unprofitable growth stocks higher.

Fresh off a solid first quarter and a steep drop, DoorDash stock now finds itself in the “growth at a reasonable price” or GARP basket, with its mere 6.1 times sales multiple. Though the firm can’t be valued on trailing earnings growth just yet, it is making the right steps. Still, this market is more than willing to punish firms with high multiples or no earnings.

Though higher rates will likely continue to dictate the trajectory of most stocks, I do view DoorDash as one of the fallen high-multiple tech plays that’s worth a second look. Wall Street analysts are staying bullish on the stock, and I think they’ll be proven right over the longer run.

DoorDash isn’t just a pandemic one-hit-wonder. Continued strength in numbers suggests the lockdown-era usage of DoorDash has led to a habit that’ll outlast the pandemic.

While I’m no fan of the fallen pandemic beneficiaries, I like DoorDash, as management continues leveraging its strong network effect. Moreover, the firm has many growth levers it can pull as it looks to become even more dominant. I am bullish on DASH stock.

DoorDash Reports Solid Quarter; Shares Sink Anyway

DoorDash just came off a decent result, yet not decent enough to help the stock resist the downward pressure applied by broader markets. DoorDash did a lot of things right to spark a 25% pop in total gross order volume year over year.

While the quarter was solid on the sales growth front, with progress on margins, the firm’s heavy investments caused the firm to report a larger loss than expected. These losses seem bleak at first glance. However, such investments are critical to building market share in new localities.

In a time where investors want profits as soon as possible, it’s justifiable to see DoorDash sink lower. That said, the company is investing in its future, and it has fundamentals that are getting better with time.

Though DoorDash isn’t profitable, it has a plan to become profitable, perhaps on the back of the next bull market, if, in fact, the current bull market is destined to die at the hands of this pullback.

In any case, DoorDash is executing accordingly to plan, even though its stock suggests otherwise.

DoorDash is Quickly Becoming a Force

As DoorDash wins over more restaurants, the value of its service and monthly membership increases. Further, DoorDash will gain more bargaining power with time as it continues winning over loyal customers.

Though DoorDash may face severe headwinds in a recession, as consumers opt for money-saving over convenience, I do think that such headwinds will be temporary in nature.

Even as the economy sinks lower, DoorDash will be hard at work improving delivery times, and pursuing potential opportunities in M&A.

What Could Give DoorDash a Lyft?

Arguably, DoorDash can leverage its network effect by pursuing Lyft (LYFT), as an analyst at New Street Research recently noted.

Such a rumored acquisition may make sense after the ride-hailing service’s recent plunge. Whether such a deal comes to fruition is anyone’s guess.

A Lyft deal would put DoorDash head-on against its rival Uber (UBER). Given the hefty $7-billion price tag of Lyft, though, there may be no plans for a buyout anytime soon. As this sell-off drags on, though, such an epic merger could make a lot of sense.

Wall Street’s Take

According to TipRanks, DASH stock comes in as a Moderate Buy. Out of 15 analyst ratings, there are 10 Buy recommendations and five Hold recommendations.

The average DoorDash price target is $137.87, implying 115.3% upside potential. Analyst price targets range from a low of $80 per share to a high of $230 per share.

Bottom Line on DoorDash Stock

DoorDash stock has been sagging lower of late, and it doesn’t seem like any catalysts can provide a lift. I wouldn’t discount DoorDash’s improving fundamentals, and the many pathways it can move down in pursuit of greater growth.

Though Wall Street analysts may lower their price targets, I remain a fan of DoorDash stock. It’s no longer expensive. In fact, it’s starting to get cheap, perhaps too cheap, given its dominance.

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