Prepare for a Special Delivery of Profits with DoorDash

Ever since food delivery company DoorDash (NYSE:DASH) became a publicly tradable entity, the buzz surrounding DoorDash stock has remained loud and persistent.

Close up of Doordash logo and symbol displayed at the entrance to one of their offices
Source: Sundry Photography / Shutterstock.com

For the bulls, DoorDash stock represents a stake in America’s post-pandemic “new economy.”

Without a doubt, the onset of the novel coronavirus precipitated an explosion in the food delivery business.

The optimists would contend that the resulting changes in consumer habits are permanent. On the other hand, the skeptics may argue that DoorDash stock simply went up too fast, too early.

Both camps have arguments that are worth considering. By analyzing the price action of DoorDash stock as well as the company’s position in the food delivery market, hopefully, we can determine whether it makes sense to own the shares now.

A Closer Look at DoorDash Stock

Unfortunately for many retail investors, DoorDash already hiked the IPO price of its stock before it debuted on the Nasdaq Exchange.

The company priced DoorDash stock in the range of $90 to $95 per share. Then, DoorDash increased the IPO price to $102 per share.

By the time DoorDash stock opened for trading on Dec. 9, it was priced at $182 per share, if you can believe it. That represents a 78% premium to the IPO price.

The flurry of buying activity was fierce as DoorDash stock closed at $189.51 on its first day of public trading. With that, DoorDash suddenly had a market capitalization of $72 billion.

It’s Good to Be First

Not every trailblazer in a market niche will prove to be successful in the long run. Nevertheless, it typically doesn’t hurt to be among the earliest market entrants.

Oppenheimer analyst Jason Helfstein evidently sees DoorDash at a front-runner in a promising market sector.

“The company’s early focus on suburban markets has created a unique first-mover advantage, yielding a market-leading 48% share of third-party online delivery,” Helfstein explains.

Clearly, DoorDash has come a long way. Back in 2018, the company only held a 17% share of the U.S. online food delivery market. Thus, the company’s strategy has been monumentally successful in recent years.

And so, Helfstein’s point is duly noted. With DoorDash controlling nearly half of its niche, the threats are few and far between. I suspect that many people would be hard-pressed to name two DoorDash competitors.

By the way, Oppenheimer initiated its coverage of DoorDash stock with a “perform” rating, which implies a positive outlook.

A Big Market

Similarly, RBC analyst Shweta Khajuria initiated coverage on DoorDash stock with a rating of “sector perform.” That’s similar to what other analysts might call a “hold” rating.

Khajuria’s assessment is justified as DoorDash has room to expand within a relatively untapped total addressable market that’s worth $600 billion.

Surprisingly, in 2019 online food delivery services accounted for a mere 4% of total restaurant spend. As Khajuria points out, this provides DoorDash with “significant runway for growth with powerful secular tailwinds.”

It’s worth noting, incidentally, that Wall Street analysts aren’t the only folks bracing for DoorDash’s continued growth.

Indeed, surveys indicate that numerous participating parties in the food chain (consumers, merchants, delivery drivers, etc.) believe that DoorDash boasts a “strong value proposition.”

Still, it’s good to know that the analyst community retains a generally positive outlook on DoorDash stock. Currently, the analyst consensus rating is a “moderate buy,” based on five “buy” ratings and 10 “hold” ratings.

The Bottom Line

You can find skeptics who view DoorDash stock as an example of IPO mania. And an argument can be made that the price was inflated early on.

Yet, it’s also true that the share price came down somewhat. So, if you believe in the continued expansion of the online food delivery market – as well as DoorDash’s presence in that niche – then it might be time to consider owning some shares.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.


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