In the era of the novel coronavirus, it’s not extremely difficult to understand by food delivery company DoorDash’s (NYSE:DASH) is such a red-hot name in the equities markets. And yet, even the bulls may have been alarmed by the price action of DASH stock after its initial public offering (IPO).
The market week ending on Dec. 11 actually had two high-profile IPO’s: DoorDash and Airbnb (NASDAQ:ABNB).
For the lowdown on the Airbnb IPO, I highly recommend InvestorPlace contributor Luke Lango’s excellent article on that topic.
Like ABNB stock, DASH stock took a massive moon shot as soon as it was publicly available for trading. Evidently, the buyers vastly outnumbered the sellers as an IPO feeding frenzy ensued in the market.
Now, traders are left with a vital question, depending on whether they already own DASH stock or not.
For those who don’t own the stock, is it a good time to take a position? And for folks who took an early position, should they take profits?
A Closer Look at DASH Stock
When anticipation is running hot prior to an IPO, it’s not unusual for a company to raise a stock’s price ahead of time. Thus, even before DASH stock was available to most retail traders, DoorDash had already increased the stock’s price range to $90 to $95 per share.
If you think that’s too pricey, wait until you see what happened next. Apparently $90 to $95 wasn’t expensive enough, because DoorDash then decided to price the DASH IPO at $102.
Then it got really crazy. On the afternoon of Dec. 9, DASH stock opened for trading at a whopping $182 a share. That’s 78% higher than the IPO price. It just goes to show that the vast majority of retail investors oftentimes don’t get access to the best price for IPO stocks.
At the end of its first day of public trading on the Nasdaq Exchange, DASH stock closed at $189.51. With that closing price, DoorDash now had a surprisingly high market cap of $72 billion.
The share price did cool off during the next couple of days. On Dec. 11, DASH stock closed at exactly $175. Still, that’s certainly far above the original IPO price for the stock.
I feel that it’s fine to take a small position in DASH stock, assuming you have a long-term time horizon. Food delivery is a market that’s here to stay. Moreover, DoorDash is a well-known name in that niche.
However, let’s not get ahead ourselves with DASH. It’s best to be cautiously bullish because the pandemic that catalyzed DoorDash’s huge success this year might not continue to push DASH stock higher.
Previously, Pfizer and Germany-based BioNTech SE (NASDAQ:BNTX) had announced that their vaccine candidate, BNT162b2, was found to be 95% effective in preventing Covid-19.
I’m certainly not suggesting that the demand for food delivery will just suddenly disappear. Rather, it’s important for investors to consider the possibility that the rush of enthusiasm for DoorDash in 2020 might not persist at the same level in 2021.
Plus, investors who don’t yet own DASH stock must consider its post-IPO valuation. As explained earlier, the share price moved up fast before most traders could even buy the stock.
For folks who bought the stock early, it might be a good time to consider taking profits if you have them. It’s not unusual for stocks that made a huge move post-IPO, to drop off as large-scale investors who bought at a lower price take their profits.
Overall, I tend to concur with BTIG Research analyst Jake Fuller. After the IPO, he assessed that DASH stock’s valuation “appears aggressive.” Fuller also added, “with the Day 1 surge we just can’t get comfortable on valuation.”
The Bottom Line
It’s perfectly fine to have a long-term bullish thesis on DASH stock. The arrival of a vaccine won’t cause DoorDash’s business to disappear overnight.
That being said, it’s wise to keep one’s position size moderate when it comes to DASH stock. And if you managed to take an early stake in the stock, this could be a good time to take profits.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.