Lyft, Inc. (NASDAQ:LYFT) indicated on Feb. 9 that its Q4 revenue rose sequentially by 14% over the prior quarter. This was a bit of good news in an otherwise dismal earnings report. Nevertheless, LYFT stock has been rising over the past several months, anticipating a solid recovery.
The only problem is it now reflects a full valuation, at least until the company turns seriously profitable.
In the past year, LYFT stock is up more than 72%. Most of that has happened recently as it is up 121% in the past six months alone. In fact, year-to-date, LYFT stock is up more than 30% as of March 5.
Valuation Issues
The problem is people still aren’t using Lyft for ride-hailing the way they used to. In the three months ending Dec. 31, 2020, the number of riders was down 45.2% from a year earlier. This is worse than in Q3 when it was down just 43.9%.
However, the revenue per rider is actually up 2.3% year-over-year in the past quarter. This implies that the company raised its prices. That can be seen since the volume of riders is down but the revenue per rider is up from negative 6.7% last quarter.
More importantly, at the March 5 price of $64.12 per share, LYFT stock trades for 281 times the forecast earnings per share (EPS) of 23 cents for next year. By 2023, EPS is forecast to move almost 6 times higher at $1.24 and by 2024 EPS will be $1.60.
The 2024 forecast puts LYFT stock on a two-year forward price-to-earnings (P/E) of 51.7 times earnings. This is three years out. That makes the P/E much more reasonable than 281 times for next year’s earnings, but it is a long time in the future.
Moreover, at the March 5 price, LYFT stock trades at 6.8 times forecast 20221 revenue. Even with projected 50% growth in sales by 2022, the stock is still at 4.8 times sales.
Forecasts and Analysts
Analysts seem to be fairly divided about LYFT stock. For example, TipRanks says 30 analysts have an average price target of $69.19, or 7.9% above the March 5 price. But Marketbeat reports that 32 analysts have a consensus price target of $60.50, a potential drop of 5.65%.
The Financial Times reported that Lyft, unlike Uber (NYSE:UBER), did not move forward any date when it will turn profitable. This led to the stock falling after earnings were released in early February. However, since then, the market has become more charitable on its own forecast for the company and LYFT stock has risen.
On March 2, the company filed an 8-K that provided an uplifting outlook for the rest of this quarter. It said that average daily rideshare rides increased 4% month-over-month compared to January. It said that average rideshare rides would be down 1.2% in Q1. However, this was much better than the forecast 4% drop at the time of the earnings announcement in early February.
But even more importantly, the company said it expects positive rideshare ride volume going forward. Starting with the week ending March 21, 2021, there will be positive year-on-year growth. This growth trend is expected to continue through the duration of 2021 barring a significant worsening of novel coronavirus conditions.
What to Do With LYFT Stock
This is the real reason LYFT stock is up in the past several days. I expect it will continue to float up, despite the valuation issues discussed above.
In other words, the picture has been so bleak until recently that any good news will move the stock higher. At some point, the market will realize that the company’s $20.3 billion market cap reflects all the upcoming good news, and then some.
Most cautious investors will look for a more opportune time to invest in Lyft stock. That would preferably be when it is cheaper. Or it might be when Lyft management can offer more concrete advice when it will turn profitable. A patient investor might have to give up some upside before that happens, but it will make the investment less speculative.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
