Uber (NYSE:UBER) almost single-handedly popularized the term “unicorn.” But it also led Wall Street to hate the companies designated as such.
So last year, when a bunch of unicorns went public, investors sold them in droves. Uber’s management waited so long to come public that UBER stock couldn’t live up to the hype. The nail in the coffin came when WeWork’s high-profile IPO attempt failed.
When the company reported earnings last week the stock spiked 9% on headlines. November’s horrendous earnings report was the complete opposite. The stock was falling off a cliff while the equity markets were setting records. In hindsight, that was the time to go long and I wrote about the opportunity back then.
Last year, the critics focused on the wrong things. Pundits couldn’t get past the spending. This company is global so the spending is unavoidable. Experts should have focused on the fact that the stock only sells at five time sales. That is by no means expensive. Consider that Facebook (NASDAQ:FB) sells at nine times its sales.
The other mistake investors often make when evaluating Uber is to compare it to Lyft (NASDAQ:LYFT). They are completely different companies with entirely different goals. And therein lies my bullish thesis on UBER stock.
During last week’s conference call, CEO Dara Khosrowshahi sounded like someone focused on a goal. I consider it an Amazon (NASDAQ:AMZN) in the making.
Uber Is Focused on Growth
Amazon succeeds because it tries a lot of things and ditches what fails. Uber just did this with the Eats division in India. The company said that it didn’t want to be in any market where it wasn’t a leader. That’s a winning attitude that supports my thesis. Furthermore, the earnings report caused a big rally last week but it wasn’t just the results.
Yes, Uber delivered on the metrics that mattered, but the stock really ramped after the CEO shared that it could be profitable by year-end. That’s one year ahead of schedule. Only time will tell if that’s truly possible, but I am happy with what I heard.
Management seems to have learned from their flubs last year. They figured out what pushes Wall Street’s buttons. This is not to say that they are lying to appease the collective, but they were careful to portray a certain fiscally responsible posture.
The Uber app is probably installed on all smart phones across the globe. So it’s not a surprise that the company grew revenues 37% from last year. Clearly it knows how to grow.
How to Trade Uber Stock
My early thesis was that this is a company to own for the long term. The bet is that one day it will be a behemoth with a stock price that fits its might. So far, averaging down has paid well. If someone bought shares on day one then added more near its lows, they are now profitable.
If the thesis changes then it is appropriate to exit. But in this case, last year’s struggle was more a crisis of sentiment than a failure in execution.
From a short-term trading perspective, Uber stock is now headed into a resistance zone. And since markets are near all-time highs we could see a small correction, especially while we are still dealing with the the coronavirus from China. Uber should find support if it falls into $34 per share. That would be a great entry level for new positions or averaging down.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
