DoorDash (NYSE:DASH) might be ready for pickup and delivery to a higher level. DASH stock is down about 10% year-to-date at $127.50 as of the morning of April 8, but above its IPO price. The company went public on Dec. 9, 2020, at $102 but immediately shot up to over $182. Since then the stock has settled down a bit, but it may be ready to move higher again.
One reason the stock could rebound was its excellent earnings report released on Feb. 25. The company’s revenue rose 10.35% on a quarter-over-quarter basis to $970 million. This implies an annual run rate of 48.3%. That is the basis for why I think DASH stock could be much higher within the next two years.
Upside Potential
For example, even if we used a 42% annualized growth rate, sales could double over the next two years. That would put annual sales at $5.77 billion. This means that at today’s stock market cap of $40.7 billion, DASH stock is cheap.
It implies that the price-to-sales multiple is just about 7 times sales.
But consider this. If DASH does indeed continue growing its revenue at 48.3% over the next three years, revenue would be 3.26 times today’s level.
Let’s assume a revenue of $9.413 billion by 2023. At 7 times revenue, the market cap would pick up to $66 billion, compared to today’s market cap of $42.8 billion. This means that DASH stock would rise 54.2% over the next 3 years to $196.35. That works out to an annualized return of 15.48%.
Other Reasons For Optimism
This is the basis for my optimism for DASH stock. However, there are two other reasons. First, I believe that well before then the company could generate positive free cash flow (FCF). For example, last year the company actually had a positive $146 million in positive FCF. However, the Q4 FCF level was negative.
Another reason is the company’s huge take rate. This is the amount of revenue the company can “take” from its gross order volume (GOV). For example, during Q4 DoorDash had a GOV of $8.179 billion, and revenue taken from that GOV was $970 million. That means that the take rate was 11.9%. This is very high.
I have written a number of articles that show comparisons of various take rates. For example, in this article, I show that Square (NYSE:SQ) has a take rate on its Gross Payment Volume (GPV) of just 4.3%.
Compare that with DoorDash, with its 11.9% take rate. In other words, DoorDash’s business model wrings out more cash and revenue out of each order dollar volume by a factor of 2.5 times. This is not likely to last I suspect, and over time the price-to-sales ratio will rise at least 50% to reflect the higher quality of its take rate.
In other words, in three years with revenue at $9.4 billion by 2023, the market cap could easily hit $103 billion – i.e., close to Square’s. This implies an ROI of 153% over three years, or 36.25% each year. The stock could hit $322.47 in three years at that rate.
What To Do With DASH Stock
I have shown that DASH stock could be worth anywhere from $196.35 to $322.64 in a few years. These target prices imply average annual returns of between 15.48% to 36.25% each year.
Even if we assumed that the mid-point of these target prices occur, DASH stock $269.97 sometime in the next two to three years. This is a very good ROI of at least 102% or double today’s price over that period.
On the date of publication, Mark R. Hake held a long position in Square (SQ) stock.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
