Despite the fact that the two companies have each lost billions over the past 12 months, Lyft stock and Uber stock are both held in high esteem by Wall Street analysts.
In this article, I’m only going to talk about LYFT. However, my points also apply to its larger peer, Uber, both positive and negative.
At the end of the day, analysts are way off base when it comes to Lyft stock.Here’s why I believe that’s the case.
The Analyst’s Perspective
Of the 36 analysts who cover Lyft stock, 21 have a “buy” rating, and another three rate it “overweight.” Nine analysts rate it as a “hold” and just three (less than 10%) have a “sell” rating on Lyft stock.
As for analysts’ 12-month target for Lyft stock price, the average target is $72.28. The highest target for Lyft stock price is $96 and the lowest is $35. To reach the highest target, Lyft stock price would have to jump 150% over the next year.
Lyft lost $197.3 million in the second quarter on just $867.3 million in revenue. That means it lost 23 cents per dollar of revenue.
Put another way, LYFT lost $9.05 per active rider in Q2, down from $11.42 per active rider a year earlier.
While investors seem to be put off by money-losing unicorns, analysts don’t seem to have nearly as much concern about LYFT. Perhaps they’re bullish on Lyft stock because experts say the ridesharing industry will be worth $1.2 trillion.
At the end of September, Wells Fargo analysts initiated coverage of Lyft stock with an “outperform” rating. They expect Lyft stock price to reach $60 in 12 months, a bit more than 50% above its current level.
“Investors bullish on app-based ride-hailing business must decide whether LYFT, a U.S. pure-play, can overcome its second-mover status and capture its fair share of future ecosystem profits,” Wells Fargo said in a note to clients.
“Market share runners-up in platform businesses have not, historically, benefitted from network effects to the same degree the market leader, ultimately resulting in lower growth and profitability,” the firm stated.
Interestingly, despite the fact that LYFT was second in the ride-hailing business and likely won’t generate as much growth and profitability as Uber, Wells Fargo doesn’t have a problem recommending Lyft stock.
Investors should ignore what analysts have to say about Lyft, and instead, focus on the fact that companies like WeWork are getting sent to the woodshed by investors for the simple reason that they don’t make money now and might never do so.
The Bottom Line on Lyft Stock
LYFT has trailing 12-month revenue of $2.90 billion and an operating loss of $2.37 billion.
Forget for a second that Lyft’s losing money and instead focus on the fact that it generates almost $3 billion of annual sales.
Are there any companies listed in the U.S. that have $3 billion of annual revenue and are making money?
I did a quick screen and came up with 49 stocks of companies with revenues between $2.9 billion and $3.1 billion. Of those, 37 have a positive net margin. There are a lot of great names in the bunch, including Toro (NYSE:TTC), Columbia Sportswear (NASDAQ:COLM), and Prologis (NYSE:PLD).
You can listen to a bunch of analysts and buy Lyft stock or you can purchase one of the three stocks mentioned above and survive the next recession.
It’s your call.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.