Stock Analysis & Ideas

DoorDash Stock Rallies after Delivering Mixed Earnings

Delivery firm DoorDash (DASH) saw the promise that pizza and Chinese delivery could offer and applied it pretty much everywhere else. From humble beginnings, an empire was made, and that empire recently posted its earnings report.

Despite restaurants reopening for dine-in service, there are still plenty turning to DoorDash to get their food. DoorDash’s latest earnings report may have been a mixed bag, but there are still reasons to be bullish on a company that’s leading the way in making every restaurant a delivery restaurant.

DoorDash has delivered its share of ups and downs over the last 12 months. February 2021 saw the company climb to over $200 per share. February 2021 also saw the company slide to nearly $160 per share.

March, meanwhile, saw a further decline. By the end of March, the company was hovering around $130 per share. April saw a light recovery, but May took the wind out of those sails as the company fell to just over $115. That started an extended rally for DoorDash that went well into November.

Ultimately, the company peaked in November, challenging, and even briefly breaking, $250 per share. That was too much for the company to hold, and a plunge followed that saw over half of the company’s value lost within three months’ time.

The latest news proved a bit mixed, but its earnings report was good enough for investors hungry for a DoorDash recovery. While the company posted a loss—and a broader one than analysts with Refinitiv were expecting—revenue posted a win.

DoorDash brought in a loss of $0.45 per share against projections calling for $0.25 per share. Revenue, meanwhile, came in at $1.3 billion against projections of $1.28 billion. Not only did consumers spend more, more customers spent. The gross order value for the fourth quarter was $11.2 billion, up 36% from the same time the previous year and passing analyst projections of $10.6 billion.

Wall Street’s Take

Turning to Wall Street, DoorDash has a Moderate Buy consensus rating. That’s based on 11 Buys and five Holds assigned in the past three months. The average DoorDash price target of $176.08 implies 67% upside potential.

Analyst price targets range from a low of $118 per share to a high of $270 per share.

A Winning Package, Ready for Delivery

DoorDash truly made a name for itself during the pandemic. For many, that was the only way to get food that hadn’t been prepared at home. DoorDash, likely seeing how well this model worked, quickly turned its sights in pretty much every direction it could find.

The company began offering delivery on just about everything that could fit in someone’s car. DoorDash even tried its hand, briefly, at delivering love based on the common joy of spicy chicken. A brief promotion with Shake Shack (SHAK) saw the duo launch “Eat Cute”, a short-term dating service for those fond of Buffalo Chicken Sandwiches.

Granted, the company posting a loss for the latest quarter isn’t good news. It’s worse yet to see that hedge funds are a lot less involved than they were. Just to top it off, insiders are selling shares as well. Insiders sold $22.1 million over the last three months, and hedge funds cut back on 5.5 million shares as well. All of these factors together might suggest it’s time to get out. However, a closer look at the rest of the numbers suggests otherwise.

The company is trading well below analyst expectations right now. It’s not only below its average and highest targets, but it’s still below its lowest targets too. The upside potential here is impressive.

Better yet, there’s little sign that consumers are going to stop ordering food for delivery. Sure, we’re seeing a lot more home cooking and eating therein, but delivery is basically the same, so it dovetails with a current trend.

72% of millennials eat out at least once a week. However, 45% of Americans eat their first meal of the day at home more often. That makes for a mixed future ahead. It helps that 40% of shoppers have a tough time figuring out what to cook every day. That makes ordering out a ready-made solution to an everyday problem.

DoorDash’s dividend history, or lack thereof, makes it a poor choice as an income stock. However, its potential for growth—remember those analyst projections—makes it much more likely to be a growth stock.

Concluding Views

Granted, DoorDash will face a lot more competition going forward. The rise of at-home meal kits will cut into DoorDash’s future, as well the return of dine-in options at restaurants. DoorDash’s pandemic days are well behind it, and it’s not likely to see those results again.

However, DoorDash also has a bright future in providing convenience. American consumers have long loved convenience, and it will take a serious turnaround in the overall economy to hurt that. DoorDash branching out into non-food items will certainly help its losses caused by reduced demand from the diminishing pandemic.

DoorDash was a pandemic winner. Without the pandemic—at least, without it being as pronounced as it was—it’s not likely to repeat those results. However, DoorDash is rapidly making itself an indispensable part of American lives. Keep that in mind when considering an investment, and you’ll likely be as bullish as I am.

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