One day doesn’t make a trend. But two weeks as a publicly traded company and bears are being served an opportunity at their doorstep in DoorDash (NYSE:DASH). Let’s take a look at what’s happening off and on the price chart of DASH stock, then offer a risk-adjusted position aligned with those findings.
Recent IPO and food delivery service DoorDash has had a tough go of it since making its debut on the NYSE on Dec. 9. An intraday high of $195.50 and near double over its beefed-up $102 IPO price tag quickly turned into an all-time-high. Moreover, that brief enthusiasm shows no indication of being overcome with DoorDash shares off 20% from its high.
So, what went wrong compared to high-profile IPOs Airbnb (NASDAQ:ABNB) and C3.AI (NYSE:AI) which debuted within a day of DoorDash and both stocks setting new highs in Tuesday’s session? Many are stressing, quite simply and in various ways, that DASH stock is too expensive.
From “Why I’ll Never Own DoorDash Stock” to “Avoid DoorDash Stock Unless You Can Handle the Pressure” headlines, well-followed short-seller Citron Research calling DASH “the most ridiculous IPO of 2020” or Mr. Bull Market himself Jim Cramer saying you only have his blessing at $100 or less, the Wall Street community agrees. There’s a lot not to like about DoorDash these days, unless you’re a bear.
To be certain, Wall Street’s investment banks deserve a hats-off nod. They pulled off a roadshow which produced a remarkably successful $68 billion IPO. But unless you’re a DoorDash insider or an investor who was allocated a piece of that action, I’d heed the warnings like those from above. Moreover and with DASH stock delivering a price chart made to order for further downside, bears might want to sink their teeth into a trade.
DASH Stock Daily Price Chart
Could DoorDash be worth $40? Citron Research believes it could. At a minimum, I like what I’m seeing near $156 a share with an eye on a lower share price in 2021.
Off the chart, there’s DoorDash’s wildly high sales multiple relative to food delivery competitors Uber (NYSE:UBER) and Grubhub (NYSE:GRUB). It’s concerning. Yahoo Finance shows DASH stock fetching 19.5x sales versus 7x – 8x for GRUB and UBER. It’s also a flag compounded by a lack of stickiness from consumers. Bottom line, most of us don’t care which service delivers our meal, as long as it’s the fast and cheap.
Citron also notes the possibility of government regulation. If that were to occur and squeeze margins in the process, reasonably any oversight would weigh more on DoorDash given its valuation. As much, a stock price of $156 appears even more at risk.
The price chart in DoorDash appears agreeable to lower prices as well. Technically, two weeks isn’t a lot to go on as far as price action. But aside from noted weakness relative to AI and ABNB stocks, DASH stock is confirming a bearish entry which just signaled today.
The Bottom Line
Tuesday’s modest price drop has traded through Monday’s bear flag candle which found resistance in-between DoorDash’s 50% – 62% resistance levels. Given the situation and for investors willing to entertain short positions, the February $140/$125 bear put spread looks about right off and on the price chart for a little snack that could turn into a sizable meal.
On the date of publication, Chris Tyler does not hold, directly or indirectly, positions in any securities mentioned in this article.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.