Since the beginning of the pandemic, DoorDash (NYSE:DASH) has seen business explode. DoorDash stock has delivered impressive returns, running from $140 to a Jan. high of $221.40.
As things go back to normal, though, expect people who got used to ordering in to keep doing so, but delivery stocks might be all tapped out.
Consider that GrubHub Inc. (NYSE:GRUB) ran from a low of $29.35 to a high of $83.71 in recent weeks and Uber Technologies (NYSE:UBER) ran from $13.71 to a high of $60.03.
As hot as they all have been the sector has become aggressively overbought, and a correction is on the horizon.
Wait for the Pullback in DoorDash Stock
While the stock could push higher, long-term, don’t buy just yet.
At the moment, DASH is technically overbought at its upper Bollinger Band. It also is stretched on relative strength (RSI), MACD, and on Williams’ %R.
When these indicators align in overbought territory, don’t buy. Instead, wait for it to drop, and for it to find support. The last thing you want to do here is chase momentum and lose money.
In fact, we’re not the only ones suggesting you avoid the stock at the moment. According to Barron’s contributor Eric J. Savitz, a good deal of advisors are telling investors to wait because of the hefty valuation to date.
Plus, many are concerned about the sustainability of growth, as the economy potentially reopens, and folks can eat indoors again. Goldman Sachs Heath Terry for example has a neutral rating with a $135 price target.
While he sees the appeal of DoorDash stock, he’s concerned about the current valuation. He even notes, he’ll “look for better entry points, despite the likely near term financial outperformance as the resurgence in lockdown conditions drive customer growth and frequency higher.”
DoorDash Could See Higher Highs
There’s news the company could enter the Japanese market, which led Bank of America to raise its price target from $157 to $200.
The news comes as Japan expands its “state of emergency” and even banned the entry of foreign nationals. The expansion covers areas that are home to more than half of Japan, according to ABC News. Plus, bars and restaurants were asked to close by 8 p.m.
Residents in some areas have even been asked to avoid going out altogether. While no one knows how long the restrictions will last, there’s already talk of delaying the Tokyo Olympics again.
That could create a big opportunity for DoorDash. At the moment, according to Nikkei Asia, there’s a large, untapped food delivery market. However, with the pandemic wreaking havoc, that could change and drive a good deal of growth for food delivery.
Until the Pandemic Fades, Food Delivery Will Thrive
The stock debuted at the right time. With the pandemic ravaging restaurants food-delivery services like DoorDash are thriving. In the first nine months of 2020, revenue tripled year-over-year to $1.92 billion. For the second quarter of 2020, it posted a profit of $23 million for the first time in the company’s history.
In addition, as noted by NPD, restaurant digital orders have grown at an average annual rate of 23% since 2013.
“A restaurant’s app or website represents 70 percent of digital orders and the remaining orders are through third-party apps or other types of apps or websites,” NPD added.
Plus, JMP analyst Ronald Josey recently initiated coverage with a Market Outperform rating and $185 target on the DASH stock, too.
The Bottom Line on DASH Stock
DoorDash stock could eventually retest its prior highs above $220.
Right now, though, don’t chase it. It’s technically overbought and overdue for a pullback. Longer-term, DASH stock could accelerate higher, especially if the pandemic decides to stick around longer than expected.
When it comes DoorDash, it would appear there’s plenty of growth still left to be delivered.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article. A contributor to InvestorPlace.com, Ian Cooper has been analyzing stocks and options for web-based advisories since 1999.
