Trading Uber (NYSE:UBER) stock has been a conundrum for a lot of investors. It took forever to come public, and while it was private it experienced extreme love and adoration. By the time it hit Wall Street the expectations had been built up too high that the disappointment was inevitable. UBER stock plunged almost 50% before it found footing.
I was bullish throughout all the negative rhetoric, and I have not changed my mind. Today is an opportunity to stress that once again, even under stressful market conditions.
Yesterday, the indices fell 3% on a mini crisis of sentiment. But by the day’s end, the Nasdaq closed green and the S&P 500 was off its lows. While this is not a call to an absolute bottom, it is a sign that there is no panic. The U.S. is going into the uncertainties of an election season, so it’s only natural we have bad days. After all, we had such a long of green ones that these seem like the end of days.
This notion extends to UBER stock. When it was still called a unicorn, everyone loved it. Then for a short stint last year around November it suffered extreme hate. Now it is quietly doing what a healthy stock does climbing out of the pandemic in a reasonable manner.
The Rally Back for Uber Stock Is Orderly
It has been consistently setting higher lows and higher highs from the March bottom. It failed at exceeding the February level, as it should have on its first attempt. Now the bulls after a brief swoon are coming at it with a second wind.
That is proper bullish action to deal with resistance lines. This is proof that the buyers are in control of this stock. Therefore the thesis remains intact. Own Uber stock for the very long term because it has big upside potential!
Listening to the experts on this company is sure to cause mistakes. Most still miss the point of it. Uber is not a people moving company, their goal is to aggregate a whole bunch of businesses over time. This is the strategy that Amazon (NASDAQ:AMZN) used to build its empire. When people sell it on labor concerns in one area, it presents an opportunity to buy that dip. I expected that about month ago and that delivered a quick dip then a big recovery rally.
The current ongoing breakout is still valid as long as the bulls can hold $34 per share. There are additional technical triggers along the way, so if I’m long the stock I stay in it. If looking for an entry, this is as good a time to add Uber stock as any.
There Is Tremendous Support In Spite of Elevated Risks
The correction on Monday was not on new information. Nevertheless, if this malaise continues and Uber falls further, it would make for an even better buy. The Covid-19 crash should have completely demolished this company and its stock.
Yet miraculously, they not only survived it, but the stock is thriving. The rebound has been so fierce that Uber stock established a very well consolidated zone above $28 per share. Within that there is strong support at $32, so the bears will need miracles to breach through those levels. Thereby making the dips in Uber buying opportunities rather than reasons to sell it.
My thesis on the stock is long-term because current valuations do not reflect what it eventually will be. Even then it is not outrageous. It is definitely expensive because the company still loses a lot of money. But its price-to-sales is under 5! That’s around Amazon’s, and Zoom has a P/S that is 18 times more. There is very little froth built into the current stock price of Uber. Even if the correction persists, this company does not have as much to fall as the typical momentum stock.
There is also the matter of vaccines, the experts promised us they would have one this year. In the coming months this should really help Uber stock recover. People are still somewhat spooked by crowds so they are still sedentary. If they are given a vaccine they might move around more often. This will help the travel and entertainment industries which would include Uber as well.
Proven Management Teams Make a Big Difference
The leadership came under fire immediately after its IPO. But after a few months of contention, CEO Dara Khosrowshahi has finally earned the faith of investors. They listened to the critics and now the messages from management have been inline with expectations.
There are bullish ways to trade Uber using the options market now and leave room for error. Investors can sell the Dec $29 put and collect over $1 for it. This is the equivalent of catching a 3% rally and not losing money until Uber stock falls another 20%. And even that worst case happens the investor ends up owning the shares at a steep discount. Compare this with somebody that was long the stock the whole time. They’d already be down 20%. I suggested selling the Nov $26 puts in my prior write up and those played out well, so rinse and repeat.
Fear is not an investment thesis. The drop on Monday was fueled by speculation and media rhetoric. In reality, stocks rallied too far and now they fall back to retest the breakout necklines. This is normal price action and we don’t need the headlines to justify the action. Red does happen and mature investors should be able to shrug this off.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.