There are a lot of companies right now to consider for a purchase. But if the ticker in question is Lyft (NASDAQ:LYFT) stock, the price you pay today could prove more costly than imagined. Let me explain.
For buy-and-hold investors, shares of Lyft haven’t lived up to their IPO hype. In 2019, shares were off 40% from their initial public offering price of $72.
And from the stock’s all-time-high of $88.60 set in the first week of trading, LYFT cratered 51%. And even in the aftermath of the broader market’s own massive correction, Lyft has proven an unusually tough ride. But that’s not to say the rideshare operator hasn’t had success off the price chart with its business.
Since going public last March, the company has managed to capture market share at the expense of much larger rival Uber (NYSE:UBER).
The growth has also been accompanied by mostly better-than-expected quarterly results, strong management execution and more than one positive outlook. But that was then and this is now. And 2020 isn’t doing Lyft’s near-term prospects any favors.
Under a new socially distanced normal thanks to the novel coronavirus, the challenges facing Lyft have quickly become increasingly onerous. Uber’s 94% slide in ridership according to data shop Superfly Insights is likely proof of that. Maybe worse, Lyft isn’t updating Wall Street on its own performance and yanked guidance altogether this week, citing “evolving and unpredictable impacts from Covid-19.”
Bottom line, even when other companies get back to work, it’s not going to be business as usual for Lyft. Sure, the rideshare model has nowhere to go but up from here. However, I’d strongly suggest not holding your breath for a miracle to happen.
What’s more, Lyft’s recent but late move into very competitive food and parcel delivery markets doesn’t have a shot of filling what will be a large void.
LYFT Stock Weekly Chart
Source: Charts by TradingView
Despite the indicated warnings and problems in Lyft stock, I do see a light at the end of the tunnel. But it’s also estimated it will be a long and difficult road, both off and on the price chart, before shares successfully turn the corner in a positive way. As such, there’s little reason to buy shares in the near-term while the stock is facing these challenges.
Technically speaking and after hitting a fresh all-time low in mid-March, shares of Lyft have just more than doubled in price. But in looking at the price chart for guidance today, investors should err on the side of caution.
The provided weekly chart of LYFT shows the rally of the past few weeks is setting up as a counter-trend pullback within an existing downtrend. Additionally, while shares are still 30% beneath 2019’s closing print, they’re also riskier. This assessment is based on multiple and nearby layers of Fibonacci-based and pattern resistance. By my measurements, Lyft has five or more resistance levels between $35 and $43. It’s significant. And there’s also an additional three or more layers of resistance up through $51.50.
To be fair, Lyft still has some wiggle room to rally from its current price near $30 before shares move into a full-blown challenge of resistance. And with the lower end of the outlined zone roughly 16% above today’s prices and stochastics trending nicely higher inside neutral territory, the potential for decent-size profits exists prior to any technical alarm bells going off. But I’d warn investors to take a pass.
With earnings on the horizon in early May, waiting for on some clarity before considering a purchase of shares makes sense. Patience, of course, could mean buying the stock at markedly higher prices. Shares could also travel down March’s dark road or even remain near today’s “the market is always right” pricing.
Whatever the outcome, standing on the sidelines looks about right in Lyft for the time being.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
