Shares of ride-sharing giant Lyft (NASDAQ:LYFT), which has been decimated amid the novel coronavirus pandemic, finally caught a break as Lyft stock popped 10% in early June to their highest levels since March after the company gave a bullish update on recent ride trends.
Lyft reported that May ride volume rose 26% from April. More than that, the company said that ride volume has risen for seven consecutive weeks since early April. And, in cities where stay-at-home orders have been fully lifted, ride demand trends are improving more quickly.
These new data points fit alongside a broader data-set which ultimately concludes one thing: the worst of the Covid-19 recession is over.
Better days are ahead for the whole economy, and for Lyft.
Accordingly, I say stick with the rally in LYFT stock. Yes, shares are already up big from their March lows, but they are still well off their February highs. All the data today supports the idea that the ride-sharing industry will fully recover from this pandemic.
In this sense, LYFT stock is positioned to rally back to its pre-Covid-19 levels, implying another 30%+ upside.
The Worst Is Over
There is ample data out there which supports the notion that the worst of the Covid-19 recession is over — and that things will get back to “normal” rather quickly.
In addition to Lyft’s rebounding ride volume trends:
- A recurring Statista survey shows that consumers are increasingly less afraid of Covid-19, with the number of consumers saying they are very worried about the virus dropping from 28% in late March, to 20% in late May.
- Weekly jobless claims came in at just 1.9 million for the last week of May, continuing a multi-week downtrend in job loss. Many economists see job creation resuming soon.
- The ISM’s Non-Manufacturing PMI for May came in at 45.4, ahead of expectations and up 3.6 points from April.
- Manufacturing PMI similarly improved in May.
- Apparel retailers from Kohl’s (NYSE:KSS) to Urban Outfitters (NASDAQ:URBN) are reporting rebounding store traffic.
- Planet Fitness (NYSE:PLNT) reported strong gym traffic trends.
- Where open, beaches have been packed.
All in all, the takeaway is clear.
The U.S. economy is rebounding, and those industries that were supposed to forever change — ride-sharing, physical shopping, gyms and social events — are normalizing quickly.
They will continue to normalize over the next few months. As they do, “get out of the house” stocks will continue to recover.
Next Stop is $45
For LYFT stock, the next stop is $45.
Over the next few months, the company’s ride volume trends will continue to recover as the economy gradually reopens. Consumers will regain confidence and the world gets back to going out and socializing on the weekends.
At the current pace, ridership trends could even get back to the flat-line by late summer — well ahead of consensus estimates. The consensus Q2 and Q3 revenue estimates on Wall Street call for 30%+ revenue declines in each quarter.
Above-consensus results over the next few quarters, plus marked multiple expansion (shares trade hands at 2.7-times sales, versus a 2019-average-sales-multiple of nearly 4), will power LYFT stock higher.
How much higher?
To around $45.
That’s roughly where shares traded pre-Covid-19. It makes sense that Lyft stock will do a full round trip back to those levels, as its growth trends complete a similar round trip.
Above $40 is also where the company’s long-term profit growth prospects say the stock should trade in 2020, assuming: 1) the ride-sharing industry gets back to growing, 2) Lyft maintains its No. 2 position in that market, and 3) the market continues to rationalize and scale drives profit margins higher.
Under those assumptions, I maintain that Lyft has $5 in earnings per share potential by 2030. Based on a 20-times forward earnings multiple and a 10% annual discount rate, that equates to a 2020 price target of well over $40.
Bottom Line on LYFT Stock
Stick with the recovery rally in LYFT stock.
It may not be smooth. In fact, it’ll almost assuredly be choppy.
But the big picture remains favorable.
In the coming months, the economic recovery and consumer behavior normalization waves will ultimately push this stock back to where it was before Covid-19 emerged – implying 30%+ more upside potential in LYFT stock.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long KSS.