Lyft (LYFT) is an e-hailing company situated in the United States. The firm is seen as Uber’s primary competitor but focuses its energy on taxi services rather than having a footprint in a diverse range of transportation segments. I am bearish on the stock.
Earnings
Lyft released its Q4 earnings report last week, in which it missed on anticipated active ride counts and EBITDA. However, the company managed to beat revenue estimates by $29.05 million, but there are broader implications here.
Lyft currently has a return on invested capital (ROIC) of -36%, suggesting that it’s struggling to build on its existing market share. ROIC is generally accepted as an indicator of a company’s market positioning; Lyft’s ROIC is lagging behind UBER’s (UBER) ROIC of -12%, conveying that there’s somewhat of a disparity developing between the two e-hailing favorites.
An additional implication for Lyft is that the e-hailing business is entering a growth phase and has exited the embryonic stage. An industry growth phase is characterized by an abundance of market entrants that will make up for a more competitive sphere overall.
It’s crucial that Lyft pushes to cannibalize new entrants; however, an annual reinvestment rate (CapEx) decline of -15.5% suggests that the firm doesn’t have any ambitions of doing so.
Valuation
The e-hailing firm doesn’t seem to be a good deal for equity investors at the moment. Lyft’s price-to-sales and forward price-to-cash-flow metrics are trading at industry premiums worth 1.76x and 1.31x, respectively.
Price to sales and cash flow metrics are helpful angles to observe when looking at a growth stock as they’re not subject to adjusted income statements and are less susceptible to volatility. The stock’s valuation metrics suggest that its traded market price is just simply wrong, Lyft may be a decent company, but if the stock isn’t priced correctly, then that will always remain in vain.
Market Sentiment
The market doesn’t seem to like Lyft’s prospects at the moment. A good way to look at the market’s sentiment towards a stock is to look at its moving averages. Lyft is trading below its 100-and 200-day moving averages, suggesting that the market participants seem hesitant to risk their capital on Lyft stock at the moment. Only recently did LYFT stock close above its 50-day moving average.
Wall Street’s Take
Turning to Wall Street, Lyft has a Moderate Buy consensus rating, based on 19 Buys and eight Holds assigned in the past twelve months.
The average Lyft price target of $58.21 implies 33.8% upside potential.
Concluding Thoughts
Lyft isn’t reinvesting quickly enough considering the e-hailing industry’s life cycle, which is why its latest earnings report disappointed. The stock is overpriced, and Wall Street analysts have gotten ahead of themselves, in my opinion.
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