Lyft (NASDAQ:LYFT) has been parked in red since the outbreak of the coronavirus in U.S. markets. But with earnings next week it’s time to look under the hood at factors off and on the price chart, as well as when and how bullish investors might hail a safer ride with Lyft stock.
It hasn’t been a great year for rideshare outfit Lyft and its shareholders. The stock is down roughly 32%. The good news, if any, the performance hasn’t entirely been the company’s own doing. Much of the weak performance of course is a direct result of the Covid-19 pandemic.
Mandated and simply practical socially distanced measures have thrown a massive wrench at Lyft’s ride-hailing customers. Bottom and top-line, today’s normal of working from home, reliance on Amazon (NASDAQ:AMZN) for essential and non-essential goods and folks becoming acquainted with Zoom Video (NASDAQ:ZM) for meeting up with friends and family has taken its toll on a company whose aim is to get people to other places.
Yet, shares of peer Uber (NYSE:UBER) are eking out a gain of 1% in 2020 after a similar hit to its valuation at the worst of the Covid-19 bear market. So rather than being able to commensurate with those stakeholders, Lyft investors may need to ask what’s driving this bearish divergence.
Could the relative and absolute weakness in Lyft shares be tied to a situation where size matters? In investors’ minds it’s certainly possible. I wouldn’t discount the power of market psychology.
Uber is a lot larger and that plays into the idea of survivorship. The thing is, Lyft has cash on hand and sufficient liquidity. Lyft’s operations are also highly variable and costs improve in weaker environments like today’s. Could 2020’s bearish posturing reflect Lyft’s pulling of guidance in April? It could, but so did Uber.
How about the company’s more more focused rideshare business model? It’s likely. At one-point Lyft’s rideshare determination was benefiting the company and its investors relative to Uber. Lyft was gaining market share by both fists. Now though, diversification or lack thereof appears to be more important.
Uber’s food delivery service UberEats has enjoyed year-over-year growth of 72% amid the coronavirus. The company also branched out into the freight market last year. And while neither operation is helping reduce Uber’s own red ink, Lyft’s more streamlined mission and modest, late move into the business parcel and delivery markets, could be the bearish driving forces behind Lyft’s stock price.
Is there any good news for Lyft and its investors? Better-than-feared earnings or an actual beat next week could always help. Don’t expect profits of course. In fact, the company’s last update estimated profits aren’t in the cards until the end of 2021 given the pandemic’s impact.
On a positive note, Lyft has reduced spending and improved cost efficiencies amid Covid-19. And down the road, if we’re toasting the end of the coronavirus, LYFT investors may still have the last laugh before hailing a ride back home or hopping on one of the company’s bikes or scooters.
Lyft Stock Monthly Price Chart
Source: Charts by TradingView
Obviously, a lot is riding on how the new normal plays out. I’m upbeat that face masks and elbow greetings will eventually disappear. For now, and importantly, it is what it is. And when it comes to Lyft and as the monthly chart supports, it is not a great time to be buying shares without being exposed to larger downside risk.
Currently, Lyft’s time as a publicly-traded company shows the stock has reaffirmed, rather than broken out of a long-standing downtrend channel. A bearish shooting star top formed in June against pattern and Fibonacci resistance and confirmed this month is proof of that.
For now, it’s our belief investors can do themselves a big favor by waiting to catch a ride with Lyft. There’s simply too much uncertainty. I’d even warn conditions are the kind which play strongly into the hands of shorts in the near-term.
Either way and with earnings looming, more bullish investors than myself or for those that want to join Lyft’s resident bear population of around 12%, I’d strongly advise a defined and limited risk options position of some kind, rather than holding naked long or short stock exposure.
Disclosure: 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.