They say that what doesn’t kill you makes you stronger. Lyft (NASDAQ:LYFT) management has just lived through the toughest test ever, and it managed to stave off doom. My bet is that the team is up to the task and LYFT stock will have more upside in the future.
For now, the seesaw continues as it tries to stabilize after a massive jolt. This will be tough, since the current circumstance are messy — especially with the upcoming U.S. elections. Last night, the debates clearly suggested that it will be a hotly contested process. Regardless, the right call is still to own good stocks like this for the long-term upside opportunity.
In July I wrote about buying the dip because the range was set. The price action since confirmed that there is clear support. Patience is the only ingredient left for investors.
Of the two famous unicorns, I prefer Uber (NYSE:UBER) to Lyft but that’s not because of competitive reasons. The two have little in common, and I like the long-term thesis in UBER more.
Having said that, I am optimistic that they can both prosper in spite of their current blights. Both companies are on their respective missions, and they have focus. 2020 has thrown them a gigantic curve ball, but so far they have shown great poise. The fact that Lyft is still alive and kicking is a testament to management’s skills.
LYFT Stock Has Shrugged Off the Lock Down Effects
The quarantine halted all transportation, yet miraculously, Lyft is still doing okay. LYFT stock is depressed and battered, but is still roughly 100% off the March lows. It is stuck in a very consistent range between $25 and $33 per share.
Therein lies the opportunity. Because once the buyers break out from this range, they will likely overshoot much higher. Conversely, we cannot ignore that there is also the chance that the breakout happens to the downside. But without a new shoe to drop, that scenario is unlikely. The Covid-19 crash was so violent that the bottom range is bulletproof. This means that there is plenty of support below so the bulls have confidence in their footing.
Fundamentally, Lyft stock is not cheap. It still loses money but the saving grace is that the investors are realistic about the sales growth expectations. The price-to-sales doesn’t have a lot of froth built into it. This means that there is little chance that the earnings reports will disappoint in a big way.
The environment is still far from normal, and people are still not moving about like they did before. The trends toward remote work and meetings over Zoom (NASDAQ:ZM) are counterproductive to Lyft’s business model. Somehow the company needs to adapt to this new normal just in case it lingers for years. While this is a threat to its business, any relief on those fronts will provide lift for the stock.
Fear or Crowds is a Problem but This Too Shall Pass
The social distancing theme is still here, especially in California, where Lyft concentrates its efforts. Moreover, the crowd phobia is keeping people apart, so they have fewer places to go. People are doing things online as often as they can.
Then there’s the convenience element — it’s not always about virus fears. For example, I no longer prefer going to Costco (NASDAQ:COST) so I shop online. Before the pandemic, going to the store was a form of entertainment, and I am not alone at this. America loves to shop and gather, but now all that has moved to cyberspace. Lyft management will figure out a way to execute within this new prism but not for ever.
The medical experts tell us that the vaccine for Covid-19 is coming. Once we do have it, millions will go back to quasi-normal behaviors. I am not in the camp that this is the new normal. It is more likely that people have had a big scare and they need some time to heal. The crisis was violent and the negative rhetoric was scary. It’s only human of us to be somewhat apprehensive.
I chose to change very little about my routine. We even took our summer vacation to Cancun as planned. Maybe if people had the vaccine, more would also go back to some semblance of normalcy.
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.